{"id":1306,"date":"2016-11-21T15:40:17","date_gmt":"2016-11-21T21:40:17","guid":{"rendered":"https:\/\/www.headwaycapital.com\/blog\/?p=1306"},"modified":"2020-10-05T16:44:10","modified_gmt":"2020-10-05T21:44:10","slug":"revolving-credit-might-best-option","status":"publish","type":"post","link":"https:\/\/www.headwaycapital.com\/blog\/revolving-credit-might-best-option\/","title":{"rendered":"Why Revolving Credit Might Be Your Best Option"},"content":{"rendered":"

As a business owner, you have plenty of experience conquering unknowns. From the day you open your small business\u2019s doors to hiring your first employee to dealing with small business taxes and accounting\u2026 You\u2019re always adapting to the next curveball that\u2019s thrown your way.<\/p>\n

If you\u2019re new to financing a small business, there\u2019s a lot of unknowns ahead of you. That\u2019s right\u2014if you\u2019re securing capital for your small business, you might have some questions that you don\u2019t have the answers to.<\/p>\n

How much capital do you need? When will you need it? And what do you need it for?<\/p>\n

If you\u2019re having a hard time finding the exact<\/em> answers to these questions, here\u2019s a flexible financing solution that might your best option: revolving credit<\/a>.<\/p>\n

<\/h2>\n

<\/h2>\n

What is Revolving Credit?<\/strong><\/h2>\n

The term \u201crevolving credit\u201d is actually one that you probably know well. Basically, revolving credit works just like a credit card. You\u2019re given a preset credit limit, which you can borrow against and repay based on an agreed upon timeline.<\/p>\n

There are two main types of revolving credit available to small business owners who need capital\u2014a business credit card<\/a> and a business line of credit. When it really comes down to it, a business credit card and a business line of credit are pretty similar products. But here\u2019s what makes them different:<\/p>\n

<\/h4>\n

Lines of Credit<\/strong><\/h3>\n

A line of credit<\/a> is there when a business owner needs help financing ongoing operating expenses or needs a cushion on their cash flow. When you\u2019re approved for a line of credit, you\u2019re essentially approved for a pool of funds that you can tap into whenever you want or need to. And because a line of credit is available in cash, it can pretty much be used for any kind of business need\u2014like covering payroll, stabilizing cash flow<\/a> during an off season, or covering other debt payments. It\u2019s uses are far and wide.<\/p>\n

When you tap into a line of credit, you\u2019ll only pay interest on the amount you draw. And once you\u2019ve repaid in full, your line of credit will be replenished to its original amount.<\/p>\n

<\/h4>\n

Business Credit Cards<\/strong><\/h3>\n

With a business credit card, you won\u2019t get the same flexibility or affordability than you would with a line of credit. In general, business credit cards come with higher interest rates and charge fees for withdrawing a cash advance against your approved credit limit. Whereas covering payroll or paying rent are perfectly acceptable ways to use your line of credit, you can\u2019t use a business credit card for these kinds of uses without paying an extra fee. On top of that, business credit card holders need to pay a minimum monthly payment in order to avoid a fee.<\/p>\n

Just because a business credit card is usually less flexible and more costly than a line of credit, they aren\u2019t bad options for small business owners who need to fund their companies. In fact, they could be the best type of revolving credit for new small business owners that have limited credit options.<\/p>\n

<\/h2>\n

<\/h2>\n

 <\/p>\n

Why You Should Use Revolving Credit For Your Business Financing<\/strong><\/h2>\n

So, a business credit card or a line of credit\u2026 Whatever your choice, is revolving credit the right kind of financing for your business?<\/p>\n

It just might be. Here\u2019s why:<\/p>\n

<\/h4>\n

You Choose When To Use It<\/strong><\/h3>\n

With other small business financing options, the day you receive the funding is the day you start using it. With a revolving line of credit, the funds sit in your back pocket, and you choose when you want to use them. This might be when you need to cover an emergency cost, pay your employees, or stabilize your day-to-day cash flow.<\/p>\n

<\/h4>\n

You Only Start Paying Interest Once You Use It\u00a0\u00a0<\/strong><\/h3>\n

At any given time, you\u2019re only paying interest on the actual amount of funds outstanding\u2014not on the entire credit limit you were approved for. So if you don\u2019t tap into your line of credit for the first amount after you\u2019re approved, don\u2019t worry\u2014you\u2019re not paying interest on it.<\/p>\n

This is a major difference between lines of credit and other financing solutions. Whereas most small business loans need to be paid back, plus interest, almost immediately after you\u2019ve received the funds, lines of credit aren\u2019t paid back with interest until you\u2019ve actually drawn on the pool of funds.<\/p>\n

<\/h4>\n

You Can Use It Over and Over Again<\/strong><\/h3>\n

This is the hallmark of revolving credit.<\/p>\n

For as long as the revolving credit agreement still stands, you can borrow and repay the same amount over and over again\u2014up to your credit limit, of course.<\/p>\n

Say you have a line of credit for $75,000, and you took $10,000 from it last month. Once you\u2019ve paid that $10,000 back, plus interest, your full $75,000 is at your fingertips again.<\/p>\n

<\/h2>\n

<\/h2>\n

 <\/p>\n

Is Revolving Credit Right For You?<\/strong><\/h2>\n

So, you know the benefits of using revolving credit. But when do you know that it\u2019s the right financing move for your business?<\/p>\n

Well, revolving lines of credit can be great financing options for small business owners who run relatively new small businesses. If you don\u2019t have significant credit history, time in business, or strong revenues, you might be able to secure a smaller line of credit. Plus, using revolving credit is a great way to build business credit<\/a> with great borrowing habits.<\/p>\n

Revolving credit is also one of the best options out there for small business owners who have unspecified or short-term funding needs. Most revolving credit can be used for any business purpose, and you can tap into your credit line whenever you need to.<\/p>\n

The bottom line?<\/p>\n

Revolving credit can be used almost whenever and however a business owner needs\u2014making it one of the most flexible financing solutions available.<\/p>\n","protected":false},"excerpt":{"rendered":"

As a business owner, you have plenty of experience conquering unknowns. From the day you open your small business\u2019s doors …<\/p>\n","protected":false},"author":11,"featured_media":1307,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[609],"tags":[238,151],"class_list":["post-1306","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-small-business-finance","tag-revolving-credit","tag-small-business"],"yoast_head":"\nWhy Revolving Credit Might Be Your Best Option - Headway Capital Blog<\/title>\n<meta name=\"description\" content=\"New to financing a small business? 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