Revolving Credit Line

A revolving credit line is a type of loan which does not set a fixed number of payments in order to repay the money which has been borrowed. This type of account is unlike an installment plan, with its specified number of payments. Instead, a certain amount of credit is granted, and the borrower may use as much of the funds as needed. Credit cards are a familiar example of this type of account. The borrower may repay the entire amount at once or spread the repayment out over as many payments as necessary. However, most of these loans will require a minimum level of repayment each month.

The amount of money available through a revolving credit line will fluctuate somewhat as the borrower repays and borrows further funds. For example, if the borrower uses $1,000 of a $3,000 credit limit, at that point he has only $2,000 left in available funds. Then, if $500 is repaid, the available amount will jump to $2,500. If the total amount of funds used is repaid, the limit will return to $3,000 and the borrower may continue to access the designated funds as needed.

With consumer cards, usually there is no charge for keeping the account open. Of course, interest will be charged according to the terms specified in the account agreement, but these charges only apply to the amount of money which has been utilized. (Corporate clients may have to pay a fee even on the funds which remain unused and ready for future purchases.) Be sure to check the method of computing finance charges, and any fees for balance transfers or late payments. Some cards have a grace period, where interest is not charged, while others charge interest from the date of purchase. Most states have specific regulations regarding revolving credit line accounts, and the charges which are allowed for these services.

Business is another major area where a revolving credit line can come in handy. Again, there is no fixed repayment schedule, but in this case the borrower may have to pay a commitment fee when applying for this type of account. The commitment fee is not the same as interest fees. Commitment fees are charged by the lender in order to guarantee that the funds will be available, either for the present or for future use. Businesses typically use a revolving credit line account for maintaining liquidity. Businesses have seasonal ups and downs, and these accounts can help smooth the way at times when an organization might not have the amount of cash flow to be able to purchase additional inventory or pay ongoing business costs such as salaries, rent or utilities. However, this source of funding is best used as a temporary measure. It is wise business practice to use the money to purchase a larger quantity of non-perishable inventory if these items are discounted in bulk by the vendors. However, if the situation is such that one is constantly having to draw upon these funds in order to remain solvent, revising a business plan may be in order. Just as in the use of a personal account, it is all too easy for a business owner to get himself into a situation which could endanger the very existence of the company.

The application and requirements for repayment on a revolving credit line may be simpler than those for other loans or financing options. Owners may borrow the funds which are needed in order to deal with various short-term fluctuations. If more long-term needs are being considered, such as the purchase of a facility, a better rate would probably be obtained by using a more conventional loan. Rates for a revolving account may vary, so shop around before making a commitment. There may also be differences in the way lenders regulate the procedures for the use of the money. Some require collateral and periodic review of the account. Others may be less demanding.

Like regular cards, a revolving credit line must be carefully monitored. Some lenders provide a personal financial counselor and additional materials such as articles or newsletters to keep their clients informed. On-line and in-person consultations about financial matters can usually be arranged. "Hear counsel, and receive instruction, that thou mayest be wise in thy latter end.", says the writer of Proverbs 19:20. The information and suggestions which these firms offer can be a valuable asset. Even if a business owner decides to take a different path, he can benefit from knowing the types of options which are available.

The likelihood of being considered eligible for a business revolving credit line may be improved by establishing a business credit score. To begin this process, apply for a business credit card and a vendor line of credit from organizations which will report your transaction history to the Small Business Financial Exchange (SBFE). In this way, personal transactions are separated from business dealings. Those companies which provide a revolving account will appreciate seeing a history of loans being repaid in a timely manner, and may be willing to give a businessman whose history is verified a larger amount of credit. Although such a privilege must be carefully maintained, this will allow a businessman to focus upon growing his business instead of worrying about financial liquidity. With this matter settled, he can know that additional funding is definitely available, and that he is prepared to take immediate advantage of opportunities to improve the business.