The relationship between a bank and a company or individual has seen manifold versions while giving credits. Unlike other credit system, the revolving line of credit allows the borrower to take out a loan amount at any particular time and under no obligation. The borrower can take part of the funds (or loan amount) at any point in time over a period of several years. In other words, a revolving credit enables an individual to borrow up to his/her credit limit and while doing so, he/she doesn’t have to reapply each time for cash. In fact, once you repay this amount, you can borrow it again (hence revolving line of credit). It is also known as Home Equity Line of Credit (HELOC).

Feature
A Revolving Credit Line aims at meeting a customer’s short-term credit demands. The various customer demands may include short-term working capital loan, discount, sight letter of credit, trade finance under international settlement, etc.

Process of applying for revolving credit loan

1. Submission of a written application by the borrower.
2. Declaration of documents like financial statements, guarantee and documents on production and operations.
3. Application letter on Revolving Line.
4. If the customer is lending a loan for his business, then declaration of information of his production and operation of the most recent plan.
5. The loan operation procedures documents to be furnished by the customer along with legal regulations on his business including bank acceptance letter and trade financing information.
6. Related documents need to be furnished by a guarantor (if any).

A revolving line of credit can be in the form of either an unsecured credit as it allows the borrower to apply (for business) for a loan amount without a collateral, i.e. office equipment, office space, etc. or secured credit – when the banks derives all the information about the borrower has his financial stability (in case of an individual) or the financial statement, e.g. company income statement, cash flow statements, balance sheet etc. to confirm that the borrower can pay the loan amount once credited.
A revolving credit holds special importance for individuals or business with immediate need of finance.
Interest Rates
The corresponding interest rates for revolving credit are usually higher than regular (traditional) loans. The interest rates appear as variable interest rather than fixed rate of interest.