# Revolving Credit

> Revolving credit is a flexible form of financing that lets a business borrow up to a set limit, repay what it uses, and borrow again — without reapplying. You pay interest only on the balance you've drawn.

## Key takeaways
- Revolving credit lets you borrow up to a set limit, repay, and borrow again without reapplying, and you pay interest only on the balance you've drawn.
- It suits uneven or recurring needs like payroll, inventory, or cash-flow gaps, while a term loan is better for one-time purchases.
- Watch for variable rates tied to the prime rate, draw or maintenance fees, and the lender's ability to reduce or freeze your available credit.

## How revolving credit works

**Revolving credit** is a financing arrangement where a lender approves you for a
**credit limit** you can use as needed. You can draw funds, repay them, and draw
again — all without filling out a new application each time. As you repay, your
available credit is restored, which is why it's called "revolving."

You pay **interest only on the balance you've drawn**, not on the full limit. That
makes revolving credit well suited to **uneven or recurring needs** — covering
payroll during a slow month, buying inventory ahead of a busy season, or bridging
a gap between invoicing and getting paid.

### A simple example

Say you have a **$50,000** business line of credit. You draw **$20,000** to buy
inventory and start paying interest on that $20,000. Once you repay it, the full
$50,000 is available again. You never paid interest on the $30,000 you didn't use.

### Revolving credit vs. a term loan

- A **term loan** delivers a lump sum up front that you repay on a set schedule —
  good for a one-time purchase.
- **Revolving credit** is reusable and flexible — better for ongoing or
  unpredictable cash-flow needs.

Common forms of business revolving credit include a **line of credit** and a
**business credit card**.

### What to watch for

- Rates are often **variable** and may be tied to the prime rate, so your cost can
  change.
- Watch for **draw fees, maintenance fees, or minimum-usage requirements**.
- Available credit can be **reduced or frozen** by the lender if your financial
  picture changes.

Hoss Capital can help you compare revolving options like lines of credit against
fixed term loans so you choose the structure that fits how your cash flow moves.

---
Canonical: https://hoss-capital.pages.dev/glossary/revolving-credit/