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, 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.