Business Line of Credit Loan
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.
Non-revolving credit usually has a lower interest rate.
How does a Line of Credit Work? Secured vs Unsecured
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.
Using Credit Lines More Responsibly
While a high line of credit can be an indicator of a business’ ability to pay, it is important to be cautious about its risks, too. Learn how you can be more responsible with your credit line by connecting to a financial advisor in Terre Haute, IN. If you live outside the area, please feel free to browse through our financial advisor page instead.
Understanding a Credit Line FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.