Revolving line of credit (RLoC) refers to the agreement between the borrower and the lender that specifies that the lender will give the borrower a facility of re-borrowing, once he has repaid the dues. There are two types of RLoCs: accounts receivables financing and inventory financing.

Accounts Receivables and Inventory Financing:
A bank offers a company RLoC facility based on a specific percentage of the evaluated orderly value of liquidation of the receivables and inventory. Generally, a company is allowed to borrow in the range of 65% to 85% and 30% and 55% of its accounts receivables and inventory respectively. Disbursements of the loan amount however depend on the applicant’s credibility and quality of its current assets’ performance.

The lenders have their own borrowing base formula to determine the amount it can lend to various companies. The formula is generally reduced by specific no-qualifying assets like past due receivables and inventory aged beyond a stipulated time. The lender also predicts the company’s cash flow adequacy, to determine whether it will be able to repay its debts on time. An RLoC’s effective advance rates are very lower, as compare to reported advance rates.

Home Equity Loans:
These loans are among the favorites of the tax payees, as they are cheap, easily available, and offer tax deductions on the interest component.

In such an option, you can avail of a loan against your house (on ownership). It is a very good option because of the prevailing low interest rates. People, however, take such loans for granted and repay them leisurely, which offset the advantages that you would reap if you repaid fast. There are other RLoC facilities as follows:

Credit Cards:
Credit cards are the most popular credit option available in the market. You can use them for almost all the purposes from paying your grocer’s bill to booking tickets in an airline. When a credit card company issues you a credit card, it sets a specific credit limit for you after verifying your income details and various other factors. You can go on borrowing until your limit extinguishes.

Retirement Funds:
You should use these loans only when all other options are closed. Interest on such loans is not tax-deductible. If you fail to repay such a loan within the stipulated time (mostly five years), you are charged with heavy penalties and taxes. Moreover, if your resign from your duties at office, the employer holds the right to call such a loan full, this can cause financial distress.

Life Insurance:
You can borrow against your life insurance, if you have a whole policy. Here, you have the option of not repaying. However, it is wise to repay, otherwise, the insurer deducts the loan amount from the benefits payable to your beneficiaries.