Revolving vs. Non-Revolving Credit Lines Check How They Differ Before Choosing One: Charles Spinelli

For startups and small businesses that struggle with poor cash flow, credit lines have become an extremely useful funding solution to access funds when needed. Apart from flexibility, it offers several benefits for businesses. According to Charles Spinelli, there are primarily two types of credit lines: revolving and non-revolving. Although both offer flexible borrowing advantages, they function in distinct ways. Knowing the difference between them can help businesses choose the best option that suits their needs.

What is a Revolving Credit Line?

A revolving credit line offers borrowers the flexibility to access loans repeatedly up to a pre-determined limit. Repaying the borrowed funds automatically restores the credit in the account, making it available to access when needed. This cycle continues as long as the account remains open and the borrower demonstrates good standing.

In essence, a revolving credit line works similarly to credit cards. The credit lines can be used for different business purposes, for instance, paying staff salaries, buying raw materials, office equipment, or managing cash flow. It is important for borrowers to decide how much to borrow and when to repay, so long as they fulfil the minimum payment conditions. What makes revolving credit unique from traditional business loans is that interest is charged only on the borrowed amount. 

Key Features of Revolving Credit

• The lender sets the maximum borrowing limit once it is approved.
• The borrower can use the funds multiple times without having to reapply.
• Minimum dues depend on how much funding is borrowed.
• Credit continues to be replenished once payment is made.

What is a Non-Revolving Credit Line?

A non-revolving credit line functions differently, says Charles Spinelli. As the borrower uses the funds and repays them, the account closes. Thus, the borrower can no longer use the same credit line; rather, they must apply for a new one.

It works similarly to a personal loan or a home development loan. The borrower is allowed the approved loan amount at a time and needs to repay it in fixed monthly installments. The schedule and instalment amount are defined at the beginning. In this credit line, interest rates remain fixed.

What are the Main Features of Non-Revolving Credit?

• The loan amount is given only once.
• The borrower is required to pay a specific amount of money each month.
• Once the debt is repaid, the account will not be restored.
• The amount to be paid with interest.

 Advantages of Revolving Credit

Revolving credit is flexible. Therefore, borrowers can access funds whenever they need them without necessarily having to reapply. It comes in handy for emergencies or short-term financial needs. The ability to access working capital in a short period is beneficial to businesses. However, it calls for discipline since overspending can result in high-interest debt.

Advantages of Non-Revolving Credit

Non-revolving credit is more structured. Its fixed monthly payments make budgeting straightforward. The borrower is aware of when the loan will be paid off. The interest rate is normally lower than that of revolving credit. The loan is best suited for borrowers who need a large amount of money for a one-time project or purchase.

Choosing the Right Option

It is up to the borrowers whether they will opt for revolving or non-revolving credit, which primarily depends on their purpose according to Charles Spinelli. Revolving credit is the best choice for meeting ongoing expenses and enjoying flexibility. Conversely, as a planned credit, non-revolving credit works best when the business has a one-time need for a specific business use. Borrowers need to consider interest rates, terms of repayment, and their spending habits before choosing.

As a funding option, both revolving and non-revolving credit lines offer unique benefits. Opting for the right type depends on the purpose and conditions of the schemes.