Manage Money

What is Revolving Credit?

There are so many expenses when you are running a business. From paying bills to replenishing your stocks to making payroll, it takes so much out of your profits that it ultimately leaves you wondering- where has all the money gone?

Sometimes, your business may need extra cash to pull through tough times. The good thing is that this is possible without having to take a loan.

When you use revolving credit, your business can get money till a predetermined amount or limit. This is called a credit limit, much like a credit card’s limit. A revolving credit is much more flexible as a borrowing option than a normal loan. Here you can take out as much money you want whenever you want, within certain limits of course.

How does revolving credit work?

Just like your own personal credit card, a revolving credit enables you to spend within a certain limit. This limit is agreed upon beforehand by you and your lender. The amount you can get depends on the state and health of your business, your credit history and your monthly revenue. 

When you repay the loan, the money you have available tops up again, which means you can use the money again. This is why it is called “revolving.”  

What can you use revolving credit for?

While revolving credit is useful for planning for your future, or for the future of your business during any crisis, it is still not completely easy to deal with a crisis. Revolving credit enables you to run your business as normal without having to worry about multiple loans or one credit after another.

Revolving credit enables you to run your business as normal without having to worry about multiple loans.

For instance, your company’s work becomes stalled by broken equipment or a big tax bill. This makes it hard for you to buy from suppliers, give salaries, and etc. Revolving credit gives you a safety net for unexpected times. During such times, with revolving credit therefore, you’ll be able to bounce back and tide over the problem. As a result, your business flourishes continuously.

What is the difference between a line of credit and a credit card?

The primary difference here is that business credit cards are mostly unsecured. These don’t require you to give any collateral but that also means you’ll have to give more fees and higher interest rates.

To get a secure credit line, you’ll need to give some collateral. This minimizes risk for the lender, which increases your chances of getting the loan, especially if it is a large amount of money. If you are unable to repay the loan, the lender takes over your collateral assets legally.

Not all lines of credit are revolving in nature. Some may be one-time. A revolving line of credit helps you in getting the same amount after loan repayment. It saves you from having to apply again and again.

Benefits of revolving credit

There are several benefits of revolving credit: 

  1. Fast disbursal

  2. Straightforward agreement

  3. Flexible nature

Disadvantages of revolving credit

There are some disadvantages too, however.

  1. It is a short-term solution

  2. It has higher interest

Where can you get revolving credit for your business?

You can get these from banks and new alternative lenders.

 

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