Business Line of Credit Loan
Written by True Tamplin, BSc, CEPF®
Updated on July 10, 2021
A business line of credit is different from a business loan.
A loan is a lump sum, whereas a line of credit is an ongoing stream of funds, like a credit card.
Lines of credit only charge interest on funds that are spent, rather than the whole amount.
Business Line of Credit Loan Forms
The forms needed for a business line of credit application vary from lender to lender, but you can expect to need some or all of the following:
- Driver’s license or another form of ID
- Bank statements
- Balance sheet
- Profit and loss statements
- Credit scores
- Business tax returns
- Personal tax returns
Traditional Line of Credit Business Loan Description
A business line of credit is an ongoing stream of funds granted to businesses by a lender, traditionally banks.
The line of credit works like a credit card; businesses have a credit limit, are charged interest on the amount that they spend, and must pay back funds before they can be spent again.
Business Line of Credit Loan FAQs
Line of Credit (LOC) Definition
What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving
Lines of credit will either remain open, or will close, once the loan has been repaid.
Revolving lines of credit are considered “revolving”because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.
In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.
Non-revolving credit usually has a lower interest rate.
How does a Line of Credit Work? Secured vs Unsecured
A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.
Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.