
When financing equipment for your business, the term “revolving line of credit” often comes up. It’s a flexible, practical solution for businesses that need ongoing access to capital, yet these financial tools are frequently misunderstood. There’s no shortage of myths surrounding equipment revolvers—misconceptions that might make you think twice before exploring this financing option.
The reality? Many of these myths are rooted in outdated ideas or simple misunderstandings. If you’re a business owner looking for a more innovative way to finance equipment, it’s time to separate fact from fiction.
Myth #1: A revolving line of credit is like a traditional loan.
One of the most common misconceptions is that a revolving line of credit works the same way as a traditional loan. While both are forms of financing, they operate very differently. A traditional loan provides a lump sum upfront, which you repay with interest over a fixed term. Unlike traditional loans, a credit revolver acts more like a credit card.
With a revolving line of credit, you’re approved for a maximum credit limit to draw funds as needed. Once you repay what you’ve borrowed, your available credit replenishes. This flexibility suits businesses with fluctuating cash flow or recurring equipment needs. Instead of taking out a new loan every time you need financing, a revolving line of credit lets you tap into funds repeatedly without the hassle.
Myth #2: Revolving lines of credit are too expensive.
Some business owners shy away from equipment revolvers because they believe they’re prohibitively expensive. While it’s true that interest rates for revolving credit can sometimes be higher than traditional loans, the overall cost depends on how you use it. The beauty of a revolving line of credit is that you only pay interest on the amount you borrow.
For example, if you have a $100,000 line of credit but only draw $20,000 to purchase equipment, you’re only charged interest on the $20,000. Additionally, many lenders offer competitive rates for well-qualified borrowers. When used strategically, such as covering short-term expenses or financing equipment purchases that generate immediate returns, a revolving line of credit can be very cost-effective.
Myth #3: It’s hard to qualify for a revolving line of credit.
Another widespread myth is that only large, well-established businesses can qualify. This isn’t true. Lenders understand that businesses in industries like construction, manufacturing, or transportation frequently need to finance equipment quickly. As a result, some lenders offer customizable revolving credit options with more accessible requirements, making it easier to get approved even if you’re not a Fortune 500 company. While lenders have requirements, such as a solid credit history and reliable revenue streams, many small and mid-sized businesses are eligible.
Myth #4: You can only use it for new equipment.
Some business owners assume a revolving line of credit is only for purchasing new equipment. You can also use a credit revolver for various purposes, including:
- Buying used equipment
- Upgrading existing machinery
- Covering repairs
- Maintenance
- And more
This versatility is one of the most significant advantages of a credit revolver. For example, let’s say you’re a construction company owner, and one of your excavators breaks down unexpectedly. Instead of scrambling to find the cash to repair it, you can use your revolving credit to cover the costs quickly, keeping your projects on schedule.
Myth #5: Managing a revolving line of credit is difficult.
Some worry that managing a revolving line of credit is too complex or requires constant monitoring. However, modern financial tools make tracking, borrowing, and repayment activity easier. By staying organized and setting reminders for repayment, you can manage your equipment revolver without stress.
Myth #6: Revolving lines of credit are only for emergencies.
Another common myth is that a revolving line of credit is only a last resort. While it can be a lifesaver when unexpected expenses arise, it is a valuable tool for proactive business planning. By considering your revolving line of credit as a strategic resource rather than just an emergency fund, you can unlock its full potential to support your business goals.
Myth #7: You must use the entire credit limit simultaneously.
Some business owners mistakenly believe that once approved for a revolving line of credit, you must immediately use the entire credit limit. This is far from the truth. A significant benefit is its flexibility. You can draw as much or as little as needed.
For example, if you’re approved for $50,000 but only need $10,000 to purchase a piece of equipment, you can leave the remaining $40,000 untouched. This “use-it-as-you-need-it” feature ensures you’re not overextending your finances or paying interest on funds you don’t use.
Myth #8: It’s better to save up cash instead.
While saving up cash to purchase equipment outright might seem the safest option, it’s not always practical or efficient. Businesses often need to act quickly to stay competitive, and waiting to save enough cash could mean missing out on opportunities. A revolving line of credit allows you to act while preserving your cash reserves.
Additionally, using credit responsibly can help build your business’s financial profile, making it easier to secure larger loans or credit lines. It’s all about balance—combining savings with innovative financing to keep your business agile and well-positioned for growth.
Myth #9: Interest rates are unpredictable.
Some business owners worry that interest rates on a revolving line of credit are unpredictable and could skyrocket unexpectedly. While some lines of credit have variable interest rates, many lenders offer fixed-rate options or clear terms that outline how rates may change.
Before taking on a credit revolver, ensure you understand all the terms. Ask your lender about the rate structure and any factors that could impact your rate. With the correct information, you can choose a revolving line of credit that fits your budget and gives you peace of mind.
Myth #10: Revolving lines of credit are only for struggling businesses.
Finally, some people believe that a revolving line of credit is only for struggling businesses. This couldn’t be further from the truth. Successful businesses often use revolving credit as a strategic tool to manage cash flow, invest in growth, and stay competitive.
For example, a thriving construction company might use a revolving line of credit to finance new equipment for a large project, ensuring it has the tools to meet deadlines. Far from being a sign of financial trouble, this can be a sign of smart financial management.
The Bottom Line
By debunking these myths, we hope to show you how this type of financing can empower your business, giving you the agility and resources to thrive in your competitive market. A revolving line of credit is, in fact, one of the most flexible and practical business financing tools available.
Start a conversation with your local Equify Financial representative to discuss the financial tools that will work best to help you reach your business goals.