In the complex world of business finance, it’s important to know exactly what you’re signing up for. A business credit line is one of the easiest ways to secure the funds you need.
The application is straightforward and quick, with less scrutiny than other financing options. Lines of credit help your business when you’re faced with unexpected expenses or cash flow fluctuations.
However, there are two ways to utilize a line of credit: revolving or non-revolving. There are differences between the two types of credit lines, both with benefits and disadvantages. By understanding your options, you can choose the right financing option for your business’s needs.
Revolving Line of Credit
A revolving line of credit provides your business with a set amount of available credit that can be used for a variety of purposes. Your credit line stays open without limitations for when you access funds or pay off debts.
The balance, available credit, and minimum balance fluctuate in response to the payments and purchases made to your account. The payments you make are based on the amount borrowed, plus interest that’s based on the balance. You can repay your balance immediately or by making minimum payments over time.
Advantages of a Revolving Credit Line
Once you’ve applied for your line of credit, you’re set. You can borrow the amount you need when you need it without needing to reapply for financing. As long as the outstanding balance can accommodate it, you have indefinite borrowing power.
For example, let’s say your credit line has a limit of $5,000. If you pay off your balance in full every month, you’ll always have $5,000 in credit available month over month.
Over time, responsible credit line usage can improve your credit score. If the lender ups your credit limit, it will also increase your buying power.
Disadvantages of a Revolving Credit Line
A revolving line of credit will have a higher interest rate than non-revolving. You can mitigate this disadvantage by paying off your balance monthly.
You won’t be able to access as much capital with a revolving credit line, but timely payments could prompt your lender to increase your spending limit.
Non-Revolving Line of Credit
With non-revolving credit lines, the available credit doesn’t get replenished after you make payments. Once the line of credit is paid down, the account will close. If you need to borrow more funds, you’ll need to reapply for financing.
Advantages of a Non-Revolving Credit Line
Lower interest rates help business owners manage their debt. Since the amount of credit given to you doesn’t replenish, you’re likely to receive a higher initial amount than you would with a revolving line of credit.
Disadvantages of a Non-Revolving Credit Line
Non-revolving lines of credit aren’t ideal for business owners who need quick access to capital. If you need to borrow more funds, you’ll have to go through the application and approval process.
We’ll Help You Find the Best Option
As you can see, there are appealing aspects to both types of credit lines. They’re both low-maintenance financing options that help you manage your cash flow. Neither has a set monthly payment requirement, and both have better interest rates than credit cards.
While you can’t borrow as much as you would with a traditional loan, it’s important to make sure you manage repayment responsibly. Otherwise, your interest could quickly get out of hand.
There’s no one-size-fits-all solution for business financing. The expert advisors at ValueOne can help match you to the financing option that best suits your needs. If you’re ready to grow your business with a credit line, contact us today or call 855-960-5315.