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Revolving credit and a line of credit are arrangements made between a lending institution and a business or individual.

For revolving credit, the lender grants the borrower a maximum credit line, like a credit card. The borrower can make purchases at any time and usually on any good. Many small businesses use revolving credit to finance capital expansion, or as a safeguard against cash flow problems.

Also like a credit card, lenders will increase credit limits if the borrower makes regular payments on his revolving credit. There’s no monthly payment, but interest accrues and is capitalized, just like with any other credit. The funds are free to be borrowed again once payments are made.

Similarly, a non-revolving line of credit features an established limit, freedom of use, flexible payment options, and interest charges. However, the pool of available credit in a line of credit does not replenish after payments are made. The account closes for good once a line of credit is paid down.

For more information, see What are the differences between revolving credit and a line of credit?

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