It’s not uncommon for businesses of all sizes to seek financial assistance at one point or another. Whether you’re looking to meet short-term needs, purchase new equipment or inventory, or expand your operations, you should consider all of your options, including revolving lines of credit.
What Is a Revolving LOC?
Unlike loans, revolving lines of credit are open-ended financing solutions. After being approved for a LOC, you have access to funds until you close the account.
The line works similarly to a credit card. You draw on it as many times as you need, up to the maximum limit. As you make payments, your available balance replenishes.
Why Use a Revolving LOC?
Benefits of a revolving LOC include:
- Access to funds whenever you need them (rather than applying for a new loan every time you need something).
- Draw as often as necessary (up to the maximum limit).
- Only repay what’s used (and only pay interest on what you owe).
- Meet short-term cash flow demands.
- More flexibility to take advantage of opportunities or reach other goals.
How Does a Revolving LOC Compare to Other Options?
Compared to a business credit card, a revolving LOC typically has a lower interest rate.
Compared to traditional loans, a revolving LOC can be “reused.” As you repay, your available balance replenishes. You also only withdraw what you need to use, rather than receive a lump sum amount upon closing. You get much greater flexibility to use your financing as you see fit.
How Do I Apply?
You can apply for a revolving LOC through a traditional bank, or you can look for an online lender. Ideally, you should shop around before committing to a lender to ensure that you find the solution that’s best for you. Before you apply, keep these things in mind:
- How much you need. LOCs have lower borrowing limits than traditional loans.
- How you’ll use the money. While you can use a LOC for just about any business-related need, most lenders will want to know what sort of plans you have.
- Your cash flow. While LOCs can help improve cash flow, your lender will want to know that you can make repayments.
- Your credit score. Your financial history does play a role in the approval of a LOC as well as what interest rate you’ll pay and how much you’ll be eligible for.
Revolving lines of credit offer an alternative to loans and other financing options. Rather than a one-time, lump sum of money, you use your LOC whenever you need it. Before you apply, however, be sure to do your research to make sure you choose the best financial solution for your business.