Finance term
Revolving Credit
Also known as: revolving line of credit, revolving credit facility
Definition
Revolving credit is a credit structure where your available balance automatically restores as you repay — you borrow, repay, and borrow again up to your credit limit, paying interest only on the outstanding balance.
Detailed explanation
Revolving credit differs fundamentally from installment credit (term loans). With a term loan, you receive a lump sum, repay in fixed installments, and the loan terminates at payoff — you cannot re-borrow without a new application. With revolving credit, your capacity replenishes as you pay down the balance, giving you ongoing access to capital without repeated application processes.
Common revolving credit products: business lines of credit, business credit cards, home equity lines of credit (HELOCs), and personal credit cards. Business lines of credit typically have draw periods (1-5 years) during which you can draw, repay, and re-draw, followed by a repayment period or annual renewal. Some lines are 'evergreen' (auto-renewing) without a defined maturity.
For cash flow management, revolving credit is superior to term loans — you only pay interest on what you use, and restored capacity is available for seasonal inventory purchases, unexpected expenses, or bridge financing without applying again. However, revolving facilities typically carry higher interest rates than term loans and may have annual fees, draw fees, or non-utilization fees.
◈ Worked example
- A $100,000 business line of credit: draw $40,000 for inventory. After 60 days, repay $40,000. Available balance restores to $100,000 — ready for next draw.
- Business credit card with $25,000 limit: charge $8,000 for trade-show expenses. Pay minimum for 2 months, then pay full balance — available credit restores to $25,000.
- HELOC with $150,000 credit limit in draw period: draw $50,000 for renovation. Repay over 18 months. Balance available for re-draw without new underwriting.
Common questions
The most-asked questions about Revolving Credit — answered straightforwardly.
What is the difference between revolving and installment credit? +
Revolving credit restores as you repay — the credit limit is reusable. Installment credit (term loans, auto loans, mortgages) is a fixed lump sum repaid in set payments; once paid down, the loan terminates. Business lines of credit are revolving; SBA 7(a) term loans are installment.
Does credit card balance affect my business credit utilization? +
Yes. Business credit card balances are reported to business credit bureaus and factor into business credit scores. High utilization (above 30% of credit limit) can lower PAYDEX and Intelliscore Plus scores. Keeping balances below 30% of limit is standard guidance for maintaining strong business credit.
Can I use a revolving line of credit for long-term purchases? +
Technically yes, but not recommended. Lines of credit are designed for short-term, recurring capital needs — working capital gaps, seasonal inventory, bridge financing. Using a revolving line for a multi-year purchase (equipment, major renovation) ties up your available credit and may cost more than a term loan if line rates exceed term rates.
Further reading
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