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A revolving line of credit is a flexible loan option that allows businesses to borrow as needed, paying interest only on the utilized amount. With the capability to re-borrow repaid funds within the draw period, this financial tool is essential for companies needing periodic working capital or seeking to manage expenses and refinance debt.

Understanding a Revolving Line of Credit A revolving line of credit, sometimes secured by assets like real estate, is divided into a draw and a repayment period.

Draw Period: This phase allows borrowing against the credit line, with interest payments commencing upon fund usage. Any repaid amount during this period becomes available for re-borrowing. The draw period’s length varies, typically lasting one to two years, after which the lender may renew the loan.

Repayment Period: Post-draw period, the loan might require full repayment or transition into a repayment phase with fixed monthly payments covering both interest and principal.

Line of Credit vs. Revolving Line of Credit Both asset-based and typically secured, these credit lines differ mainly in flexibility. A standard line of credit doesn’t allow re-borrowing of repaid funds, making it less adaptable for dynamic business needs.

Types of Revolving Lines of Credit

  • Home Equity Line of Credit (HELOC): Secured by home equity, allowing borrowing up to a significant portion of the home’s value minus mortgage balance.
  • Credit Card: An unsecured form, functioning as a revolving line with repayment flexibility within the credit limit.
  • Personal Line of Credit: Similar to a HELOC but secured by non-house assets or offered unsecured to highly qualified borrowers.
  • Business Line of Credit: Tailored for companies, these can be bank loans or loans from alternative lenders, including the SBA, offering growth and operational finance flexibility.

Credit cards, though unsecured, are a unique form of revolving credit, often carrying higher interest rates compared to other types.

Obtaining a Revolving Line of Credit Steps include identifying collateral, selecting a credit type, choosing a lender, applying, and accepting terms. The process varies with the lender and loan type, and once approved, funds are generally accessible within days.

Pros and Cons of Revolving Credit for Business Pros:

  • Interest accrues only on borrowed amounts.
  • Repeated access to funds upon repayment.
  • Potentially lower interest rates compared to other loans.


  • Some lines, especially unsecured ones, may have higher interest rates.
  • Limited draw period duration, often requiring renewal or full repayment.
  • Some lines might not convert to structured loans, necessitating full balance repayment at once.

Despite these challenges, the versatility of revolving lines of credit makes them a valuable resource for small businesses seeking to finance significant expenses for growth.

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