BUSINESS LINE OF CREDIT
A line of credit gives you access to funds up to your credit limit, which can be borrowed and paid back multiple times while only paying interest on the money you borrow. This is a flexible and typically unsecured way to borrow money for seasonal businesses, or businesses that need help managing cash flow or handling unexpected expenses.
Pros:
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Flexible borrowing
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Typically no collateral required
Cons:
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May have maintenance fee or withdrawal fee
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Good credit and consistent revenue required
Best for:
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Short term needs
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Seasonal businesses to help manage cash flow
What Is a Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be tapped into at any time. The borrower can take money out as needed until the limit is reached. As money is repaid, it can be borrowed again in the case of an open line of credit.
An LOC is an arrangement between a financial institution—usually a bank—and a customer that establishes the maximum loan amount that the customer can borrow. The borrower can access funds from the LOC at any time as long as they do not exceed the maximum amount (or credit limit) set in the agreement.
KEY TAKEAWAYS
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A line of credit (LOC) is a preset borrowing limit that a borrower can draw on at any time that the line of credit is open.
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Types of credit lines include personal, business, and home equity, among others.
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An LOC has built-in flexibility, which is its main advantage.
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Potential downsides include high interest rates, penalties for late payments, and the potential to overspend.
All LOCs consist of a set amount of money that can be borrowed as needed, paid back, and borrowed again. The amount of interest, size of payments, and other rules are set by the lender. Some LOCs allow you to write checks (drafts), while others include a type of credit or debit card.
