How Does a Business Line of Credit Work?
A business has a credit limit, which is decided by the lender, and may spend up to that amount before needing to pay down the balance.
They accrue interest on outstanding balances.
How Does a Business Line of Credit Work FAQs
What Is a Line of Credit (LOC)?
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 is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, 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.