How Does a Revolving Business Line of Credit Work?

If you're a small business owner, you may have heard of a revolving business line of credit (LOC) as a potential option for financing. But what does it actually mean and how can it benefit your business?

A revolving business line of credit essentially works like a credit card for your business, with a specific credit limit that you can draw funds from and repay as needed. Here's a breakdown of how it works:

1. Approval: You apply for a line of credit with a lender. Depending on the lender and your business qualifications, you can potentially receive approval for up to $100,000 or more.

2. Available funds: Once approved, you have access to the credit limit, but you don't have to use it all at once. Instead, you can draw funds from the line of credit as needed, up to the approved limit.

3. Interest: You only pay interest on the funds you actually take out, not on the entire credit limit.

4. Repayment: As you draw funds, you'll need to repay them with interest. With a revolving business line of credit, you have up to one year to repay each draw you take out. The repayment is typically done through automatic weekly payments, which cover the principle and the interest.

5. Reuse: As you repay the drawn funds, they become available again to use. This means the line of credit "revolves" - you can continue to draw funds and repay them as needed, as long as you don't exceed the credit limit.

6. Qualification: Qualifying for a revolving business line of credit is typically easier than obtaining a traditional business loan from a big bank. Requirements may include a minimum credit score, specific revenue and time in business, and other factors.

Benefits of a Revolving Business Line of Credit

There are many potential benefits to using a revolving business line of credit for your small business. Here are a few:

- Flexibility: You can draw funds as needed, repay them on a timeline that works for you, and reuse the line of credit with ease.

- Access: You don't have to apply for a new loan every time you need financing - you already have access to a designated credit limit.

- Control: You decide when to draw funds, how much to draw, and how to use the funds. This allows you to maintain control over your business finances.

- Interest savings: Because you only pay interest on the funds you use, you can potentially save money over time compared to other financing options with higher interest rates.

Overall, a revolving business line of credit is a flexible and accessible financing option for small businesses. To learn more about whether it's right for your business, speak with a trusted lender or financial advisor.