On a revolving business line of credit, repaying principal restores the amount you can draw again; on a non-revolving line, each draw permanently reduces what is left. Silvershore Funding Group, a small-business funding broker in Flagstaff, Arizona, explains how draws, draw periods and interest work on each, and when each fits. Lending partners decide on lines and set their terms.
| Revolving line | Repaid principal becomes available to draw again |
|---|---|
| Non-revolving line | Each draw permanently reduces the amount available |
| Interest on both | Charged on the drawn balance, not the unused limit |
| Draw period | The time during which you can take money; set in the agreement |
The short answer
| Revolving line | Non-revolving line | |
|---|---|---|
| You can draw | Up to the limit, repeatedly, during the draw period | Up to the limit, but only once in total |
| When you repay | The repaid amount is available again | The balance falls; availability does not come back |
| Behaves like | A reusable cushion | A loan paid out in pieces |
| Usually suits | Recurring, uneven costs | One project with spending in stages |
A worked example
Hypothetical figures, chosen for easy arithmetic, not a typical offer. Two businesses each have a line with a $10,000 limit. Both make the same moves over four months.
| Month and move | Revolving: balance / available | Non-revolving: balance / available |
|---|---|---|
| 1. Draw $4,000 | $4,000 / $6,000 | $4,000 / $6,000 |
| 2. Repay $3,000 | $1,000 / $9,000 | $1,000 / $6,000 |
| 3. Draw $5,000 | $6,000 / $4,000 | $6,000 / $1,000 |
| 4. Repay $6,000 | $0 / $10,000 | $0 / $1,000 |
After four months both businesses owe nothing. The revolving business has its whole limit back for the next need. The non-revolving business has $1,000 left to draw, ever, because $9,000 of its limit has been used even though it was repaid.
What it means to draw, and what the draw period is
Drawing means moving part of the limit into the business account. From that moment the drawn amount is a balance you owe, and interest begins on it. On both kinds of line, you only pay interest on what you have drawn.
The draw period is the time the agreement allows for drawing. When it ends, a revolving line may be renewed after a fresh review, or its balance may convert to a repayment schedule; a non-revolving line usually simply stops taking draws, with any balance repaid on its schedule. Read the agreement for what happens on that date before you rely on the line.
When a revolving line fits
A revolving line suits costs that come back again and again in different sizes: restocking a product line, covering payroll in a week when a customer pays late, or buying materials job by job. If your sales vary from month to month, a revolving line lets you draw in the lean stretches and pay down in the strong ones, as long as the strong ones actually come.
The risk is the opposite of its strength. Because the limit refills, it is easy to stay drawn for months, using the line as permanent capital. Partners notice that at renewal and may reduce the limit. A line that never returns to a low balance is usually a sign that the business needs a term loan or a fix to its margins.
When a non-revolving line fits
A non-revolving line suits a project with a defined total that is spent in stages: an equipment installation paid in milestones, a build-out where contractors bill as work is completed, or a planned purchase made over several deliveries. You draw only as each stage needs money, so you pay interest on less than a lump-sum loan would charge for in the early months, and the overall amount is capped from the start.
Revolving line of credit vs. term loan
A term loan pays one lump sum and is repaid on a fixed schedule; you pay interest on the full amount from day one. A revolving line costs interest only on what is drawn and can be reused, but its availability depends on renewal reviews, and its pricing and fees may differ. As a rule of thumb: a one-time project with a known price suits a term loan; repeated, unpredictable needs suit a revolving line; a staged project sits between the two and is where a non-revolving line earns its place. Working capital financing is another option for a single short gap.
How interest and fees work on either type
On both types, interest is calculated on the outstanding balance, usually daily or monthly, at the rate the agreement sets, which may be fixed or tied to an index. Some lines charge fees to open, renew or draw, or a fee on the unused portion of the limit. When comparing two lines, add the fees to the interest you expect to pay on the balance you will actually carry. Our line of credit payment calculator runs the numbers on a single draw.
Questions to ask about any line
- Is the line revolving or non-revolving?
- How long is the draw period, and what happens when it ends?
- Is the rate fixed or variable, and what fees apply to opening, renewing or drawing?
- What is the minimum payment, and does it include principal?
- Is the line secured, and is there a personal guarantee?
Silvershore Funding Group's business line of credit page covers how lines are reviewed and secured. More guides are in the guide library.
By Silvershore Funding Group · Updated