What is a Revolving Line of Credit?
A revolving Line of Credit is a loan type that provides borrowers with ongoing access to short term funds. Running a business is not an easy matter. There are often situations where one needs immediate funds to resolve a problem, for capital needs or to act as a bridge till one’s returns come in. Every business takes time to generate profits and revenues can sometimes be slow. A Revolving Line of Credit comes in as the much needed solution for the additional funds that become a necessity at such times.
How does a Revolving Line of Credit work?
Unlike small business loans, a Revolving Line of Credit allows you to continue to access additional funds as you pay and get your balance down and require more cash. If the money borrowed is paid back with interest before the next drawing period, the same amount can be borrowed again and the limit remains unchanged. In other words, it is a type of loan in which the user can borrow up to their credit again once the debt is repaid. This helps individuals and businesses with their recurring bills and maintains their cash flow making it an attractive alternative to a business loan.
A credit limit is assigned to the individual/business based on their eligibility and is usually fixed. As the borrower utilizes their credit line and pays back the credit limit increases.For example, say you qualify for a Rs.1,00,000 line of credit. You borrow the full Rs.1,00,000 and use the cash toward growing your business. Then, you pay down Rs. 50,000 using the revenue you generate, putting both your balance and credit limit at Rs. 50,000. With Rs. 50,000 paid down, you now have the option to borrow an additional Rs. 50,000. There’s no set end date, either. As long as you keep your credit line active, or continue drawing and paying it down, you can utilize a line of credit for months.
Payments can be either fixed or a percentage of the amount borrowed – the details of the same are usually included in the revolving credit agreement.
Uses of a Revolving Line of Credit
Revolving Lines of Credit are a flexible short term finance option for businesses. There are several situations that crop up in a business where funds are required urgently. You can use them to cover expenses that are weighing your business down, or use them to grow your business. There are no restrictions on how you must spend this money. Some of the most common ways that businesses utilize this business financing option include:
- Growing Your Business – The funds from a revolving line of credit can be used to expand your business, hire more talent or increase office space.
- Marketing Expenses – Attract new business by using marketing and advertising avenues to popularize your brand.
- Operating Costs – The external costs incurred can be taken care of and reduced with the help of a revolving line of credit such as rent, inventory, equipment, repairs, etc.
- Business Fees – Every business has to get a license and other permits – these can be paid while starting the business.
MyShubhLife provides effective plans of revolving line of credit that can be availed by customers from our partner companies depending on their requirements (Fino Payments Bank, PineLabs, MobiKwik). There is a daily and a weekly revolving line of credit that can range from Rs.3000 – Rs. 5,00,000 to be utilized for your needs.