Disadvantages of a Revolving Credit Line
Disadvantages of a Revolving Credit Line
Revolving credit lines have open ends, which means the company lets you spend money until the limit is reached, provided you make regular payments. Besides, there is no specific date when you are supposed to pay the entire amount back, like with closed-end loans. Business credit lines do have their share of advantages, but there are significant drawbacks to them.
Temptation
One of the most notorious disadvantages of a revolving credit line is that people are tempted to spend more money out of theirs than they are able to afford. If, for instance, you have $25,000 to draw, it is possible to purchase supplies, new equipment, and other necessary items for a business. However, there is always the temptation to purchase more than the requirement since there is more money available in the line of credit. Furthermore, it is easy to get into thinking that the minimum amount is a small one. However, you may not realize in the long run that you would have spent a huge amount on the interest alone.
