Today’s small business may become the next Fortune 500 firm. What needs to be on top is access to funds at the right time to fuel its aspirations. Business revolving line of credit is one such popular funding method, among many others available in the market. Let’s get to know about it today.
What is a business revolving line of credit?
It is a financing instrument where a lender offers a particular amount to a business or an individual for an open-ended time. This business revolving line of credit can be drawn out as needed along with the debt paid back with time. Once this debt is paid, the limit will reset, and this fund can be drawn again.
If you are a small business owner looking to fund your business without much hassle, then you can get a business revolving line of credit. This doesn’t mean if there is a line of credit or a business credit card, one will have a reach to a variety of revolving options for small enterprises. This is a product good for funding flexible operations, as traditional business loans can be restrictive.
How does it work?
A business revolving line of credit functions quite similar to how a credit card works. Here, the borrower has access to a pool of funds as and when needed. There is no need to use the complete credit amount under access, and the borrower will pay interest only for the amount used by its business.
After the borrower has paid back the whole amount with interests by the agreed time, the rest of the credit goes back to its previous limit. That’s why the term revolving is associated with it.
A business can repeat this cycle repeatedly when used and paid back the credit card amount. The only requirement is to pay back the amount timely. If that only condition is fulfilled, one can repeatedly keep using the business revolving line of credit.
However, one must note that the business revolving line of credit doesn’t ask for a purchase or physical product to extend the debt, unlike a credit card. The lender simply transfers the funds into the needed business bank account upon your request. It is also called “drawing on the line”.
Also, one must note that a business revolving line of credit doesn’t demand a purchase or physical product to extend the debt. Such loan schemes are helpful for small business owners for purposes such as payroll making, inventory payment, and other such expenses when the business is slow.
The different types of a business revolving line of credit
Following are the prominent kinds of credit funds available to businesses:
- Short-term revolving line of credit: It has a repayment period of 18 months or less.
- Medium-term revolving line of credit: The only difference is that it offers a longer-term of credit.
Business credit card: Here one can choose to pay either the complete balance in full every month or make a minimum monthly payment.