Business owners often require funding to strengthen cash flow, handle ongoing expenses, and grow their companies. An effective financial tool to consider in this situation is a revolving line of credit. Here is some important information about revolving credit so you can assess whether it is the right solution for your business.

How Revolving Credit Lines Work

When a lender provides you with a revolving credit line, you obtain funding up to an agreed-upon limit. This financing is typically backed by some form of collateral. You can draw on this amount for company expenses, and when you pay back what you have borrowed, you have access to it again. Credit lines are usually approved for a specific length of time known as a draw period. When this comes to an end, you either extend the credit line or begin a repayment period during which you pay back the loan.

Revolving Credit Types

There are various types of revolving lines of credit. These include credit cards, business lines of credit, personal lines of credit, and home equity lines of credit. The best option for your situation depends on your circumstances.

Obtaining Revolving Credit Lines

The first step in obtaining a revolving credit line is identifying the assets you will use as collateral. Next, decide which type of revolving line of credit will best meet your needs. Find a lender you can work with. If it is a credit union or bank, you will most likely have an in-person meeting to review your documentation. Online lenders offer a quicker application process that is accomplished remotely. If the lender decides that you qualify, you will sign a term sheet and a lien agreement delineating your collateral.

Benefits of Revolving Credit Lines

One of the main benefits of revolving credit is that there is no interest until you draw funds. Additionally, you are only charged interest on the amounts you borrow. You also gain access again to the funds you have paid back. The interest rates on revolving credit lines may be lower than for other loan options.

For more advice on revolving lines of credit, contact Porter Capital Group.