Growing a business is hard. It can be even more difficult to scale your operations when you are strapped for cash. One of the best ways to access funds to help grow your business is to get an approved revolving line of credit, that resets when the balance is paid off. In this article, we will analyze revolving lines of credit to help you determine if it can be leveraged to help you grow your business.
What is a revolving line of credit?
A revolving line of credit is a type of loan that resets to the credit limit when the balance is paid off. Examples of revolving lines of credit are credit cards. A borrower can always use the credit card for purchases as long as there is available credit remaining. At the end of the billing cycle, the borrower can free up more credit by paying off the balance of the card.
What is a revolving line of credit example?
Here are the three most common examples of a revolving line of credit.
Credit cards. A credit card is a card issued by a financial institution that gives a borrower access to a revolving line of credit. Every month, any purchase made on the card will be deducted from the issued credit limit and must be paid back at the end of the billing cycle to avoid interest charges. When the money that was use in the form of credit is paid back to the card issuer, the credit limit resets and the borrower can access more money.
Home Equity Loan. A Home Equity Loan, or “HELOC”, is a loan issued by a financial institution that is equal to equity of the borrower’s home. The borrower will put up their home as collateral and can borrow from the same line of credit over and over again as long as the loan is paid off on time.
Personal line of credit. A personal line of credit is a loan that allows the borrower to borrow money as many times as they want to as long as the balance is repaid.
Is a revolving line of credit good?
A revolving line of credit is best when you want the flexibility to be able to spend freely from month to month without worrying about depleting your fund – you can always get more credit by paying back the balance that you have already used.