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A non-revolving line of credit is a one-time loan that the borrower can use at their discretion until the specified amount is reached. Once the limit has been used the borrower will have to reapply to use it again. In contrast; a revolving line of credit, is exactly the same, except that once the limit has been reached and the funds repaid the funds are made available again without the borrower having to re-apply.
Revolving Credit vs Non Revolving Line of Credit
Non revolving line of credit
With a non-revolving line of credit, you can’t redraw money if you have reached your maximum limit. A non-revolving line of credit is less suitable for financing ongoing business expenses.
Revolving line of credit
With a revolving line of credit, you can draw funds and pay back the money on an ongoing basis. Let’s say you obtain a revolving business line of credit for $10,000 and draw the entire amount. You then pay back $2,000. This payment frees up more funds should you need to draw money again.
Pro-Tip: Banks and lenders often view a revolving line of credit as presenting a higher risk than a non-revolving line of credit.
Pros and Cons of Non Revolving Credit
Advantages of Non-Revolving Credit
- Draw from a line of credit when you need it - a non-revolving line of credit still has flexibility. You can draw from a line of credit as business expenses or new projects arise.
- Better expense management - a non-revolving line of credit sets you up to efficiently manage your business expenses and debt. You’ll know how much you can spend and your monthly payments.
- Lower Interest rates - a non-revolving line of credit can save you money and help you pay off the debt faster.
Disadvantages of Non Revolving Credit
- Shorter-term loan - a non-revolving line of credit is generally used for a short-term because you can’t re-borrow the funds. Once you finish paying off the line of credit, the lender will close your account, which is not helpful if you want to improve your credit score.
- Must complete another application to continue borrowing - let’s say you pay off your non-revolving line of credit but need more money; you’ll have to go through the application process again. This process will add an inquiry to your credit report.
Pros and Cons of Revolving Credit
Advantages of Revolving Credit
- Borrow money continuously - as long as you make regular payments, you can keep borrowing money. You don’t need to reapply for a revolving line of credit or prove you meet the credit requirements every time you require money.
- Improve your credit with timely payments - a revolving line of credit generally remains in use for extended periods, helping improve your credit score with ongoing payment history; which could make it easier for you to receive funding, such as business credit card funding, later on.
- Minimal limitations on using the funds - you can use the funds for almost any business expense.
Disadvantages of Revolving Credit
- Higher risk of reusing the money - you might be tempted to overspend with a revolving line of credit.
- The payment plan might be too flexible - your payment plan could vary greatly depending on how much you draw when you draw it and your interest rate. If you cannot make on-time payments, this could hurt your credit score or even subject you to costly penalties.
Non Revolving Credit Lines May Be a Happy Medium
A non-revolving line of credit is a cross between a revolving line of credit and a traditional business loan. Non-revolving credit lines are great for business owners with flexible spending needs who want predictable payments.
If you’re interested in exploring how a non-revolving line of credit could help your business, visit our page about the best business lines of credit options.
If you're looking for a recommended lender, check out BlueVine. BlueVine has low rates, a quick approval process, and lets you borrow up to $250,000. Learn more about BlueVine’s loan options.