A revolving line of credit is sometimes the best way for small companies to borrow money on a short notice. This important tool helps these small owners manage their businesses properly and allows them to pursue opportunities for growth quickly even if they don’t have cash to invest.
How does a revolving line of credit work?
A revolving line of credit is essentially a flexible method adopted by small businesses for borrowing money. It allows you to have a certain pre-approved limit for the amount of money you can borrow. With this in hand, you can use a revolving line of credit as an advance proposal to borrow money for your business at regular intervals.You can opt to use the all the money approved for your business at the same time or borrow smaller amounts up to the pre-approved limit at regular intervals.
Differences between revolving line of credit and small business credit card
Many may argue that a revolving line of credit resembles a standard credit card in many ways. However, there are many differences between the latter that make them two distinguishable entities. With a revolving line of credit, you no longer need to carry around a plastic card with you at all times.
A revolving line of credit will also allow you to borrow money for any reason. You would also not need to go through the specific purchase transaction process as in the case of a credit card. And the interest rates and fees you have to pay with a revolving line of credit is much lesser than for standard credit cards, meaning you can grow your business effectively while giving less money to the banks.
Advantages of a revolving line of credit for your business
Here are some benefits a revolving line of credit can offer for your business.
- Easy access to cash as per demand
A revolving line of credit allows you to secure funding for your business before the need for the same even arises. The funds on your pre-approved credit line are accessible 24/7, meaning you can easily handle sudden cash demands for short term needs, thus ensuring that your business runs smoothly without any hindrances.
- Flexible payment options
With a revolving line of credit, you don’t need to repay the money you borrowed all at once. A revolving credit line does not also force you to repay the money you borrowed via monthly installments. You can choose when you want to repay the money, in how many installments you want to repay the money, and how much money you will be paying for each installment.
- Clear demarcation for business expenses
At times, you may use your credit card for a personal reason. This may pose challenges if you tend to keep on using the card for both business and personal reasons. With a revolving line of credit however, you can use the money you get for your business alone. This makes it easier for you to track the business expenses effectively.
- Positive business credit
A revolving line of credit allows your business to establish positive ratings with major business credit reporting companies. With a revolving line of credit, you can also create a positive payment history and allow it to appear on the company’s business credit report. This, in turn, will improve your company’s name, reputation and credit worthiness, thus allowing you to secure more credit in the future should the need arise.
Small businesses can benefit a lot from a revolving line of credit. This extremely flexible method of borrowing money can meet a business’s short term funding needs easily. It can also help these businesses run smoothly by providing them with easy access to cash on demand.