2 min read
What it means
A sinking fund is a pot you top up regularly so a predictable large outgoing is already covered when it lands. Common uses are the annual VAT or corporation-tax bill, replacing a vehicle or machine, or a balloon payment at the end of a lease. Instead of one painful hit, you feel a manageable monthly transfer.
What this means for your company
Sinking funds smooth cash flow and cut the need to borrow in a rush at a worse rate. Build them into your cash-flow forecast as fixed monthly outflows. Where a cost is genuinely unpredictable, a standby facility complements a sinking fund — the fund covers what you can foresee, the facility covers what you cannot.
What it means for you
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.
Frequently asked questions
Is a sinking fund the same as a cash reserve?
They overlap. A cash reserve is a general buffer for surprises; a sinking fund is earmarked for a specific, known future cost. Many businesses keep both — a reserve for shocks and sinking funds for planned bills.
What should I use a sinking fund for?
Anything large and foreseeable: tax bills, asset replacement, insurance renewals, a lease balloon payment. Setting money aside monthly avoids scrambling for finance at the last minute when rates may be worse.
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