What Exactly Is A Non-Revolving Line of Credit?
Running into financial troubles can be an easy way for your small business to derail. Your available cash flow is what determines what you can do with your business, so you always need to make sure you have some sort of funds at your disposal. Many business owners explore options like bank loans when strapped for cash and looking to cover essential expenses. While this form of financing is common, it might not be the best fit for you. Using lines of credit may be a more practical solution.
There are two main forms of credit to consider here: revolving and non-revolving lines. There are a handful of important differences between the two, so look over this information and see if either is correct for you.
Non-Revolving Credit
First, take a look at a non-revolving line of credit. Essentially, this form of financing allows you to borrow a set amount of funds from a lender. Unlike traditional credit, however, the amount you have access to is a bit restricted. While traditional lines of credit allow you to pay off your debt and continue to use the line, non-revolving credit is only available until you pay it off. Once you’ve paid the credit off entirely, it is closed and no longer available to you.
Revolving Credit
Revolving credit is the one most consumers are familiar with. This option allows you to take out credit up to a certain limit. Once you pay off the credit bill, your line replenishes and you can continue to use your funds and pay them off as you wish. It is a very straightforward system, though it can put a borrower into more debt due to its continuous nature.
Related article: 4 Myths About Purchase Order Financing
What’s Better for Business?
Revolving and non-revolving lines of credit are equally beneficial to a small business for a number of reasons. Both involve a simple application process and do not require much from the borrower outside of making timely payments. The amount a borrower pays back can also be adjusted, making it easy to manage payments overall.
Still, non-revolving credit options can have a few unique perks. For one, you can expect lower interest rates with this option. Since the credit isn’t continuous, the rates are kept in a sensible range. The nature of this credit also allows borrowers to take out larger amounts than would be available through a revolving credit line.
Financing Your Future
Selecting the right financing for your small business requires thought. Look into non-revolving and revolving lines of credit and see which might help your company stay on track. For questions about your small business and financial opportunities, contact us today!
