Grow Your Business With A Revolving Line of Credit

A revolving line of credit, similar to but not identical with a term loan, is a standing amount which a bank extends to a customer to draw from. The customer is granted access to an agreed sum that is always available but not allowed to exceed that amount. While the amount borrowed under this arrangement falls due for repayment at the interest rate and time provided by the agreement, the customer only pays for the portion of the approved amount that the business has drawn down on, as different from the total amount that is allowed to access.

Given the need for a small business to regularly settle its cash flow obligations, a revolving line of credit offers a quick answer to the question of short-term funding.

With a revolving line of credit, there is no set amount that falls due for payment each month, hence the money repaid by the borrower readily becomes available to be borrowed again, as long as the borrower stays with the limit of the maximum allowed.

A line of revolving credit provides a welcome relief when a Small Business Owner needs help to meet such regular operational obligations like paying salaries, procuring supplies and raising working capital.

What features make a revolving line of credit attractive to, and desirable by, the Small Business Owner? Access to affordable funding is essential to the success of a business. Unlike other forms of financing, a revolving line of credit holds many advantages:

1.  Flexibility:

A revolving line of credit is flexible. A term loan is rigid and requires the borrower to pay a certain amount at a given time; like once a month. A revolving line of credit may only require payment of a minimum amount due. Rather, it could be an amount equal to what the borrower used during a given period.

2.  Liquidity:

A revolving line of credit gives the Small Business Owner a ready access to cash. With a line of credit in place; money is available for the business to meet its immediate short-term cash flow needs. The improved liquidity provided by this ease of access to funding helps the business to overcome the twists and turns of its operations.

3.  Credibility:

The Small Business Owner just starting out is not likely to meet the more  stringent requirements of a term loan. Therefore, a revolving line of credit gives small businesses opportunities to demonstrate that they can borrow and repay money. A performing line of credit enables a small business to build a payment history which, in turn, helps it to establish the creditworthiness that makes it more attractive to future creditors.

4.  Versatility:

  A term loan, by its nature, is often close-ended. The money advanced must be used for a stated purpose.

A revolving line of credit, on the other hand, can be applied to any area of need in the business. This is as determined by its owners and managers.

For the Small Business Owner struggling to access credit, a revolving line of credit is one way to go. It holds better promise than a term loan. Especially if the business does not have a track record of borrowing money.

Do you need help to prepare your business to access a revolving line of credit? Visit the SME Clinic at