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Line of Credits
Maximum loan amount that
a borrower can draw upon as needed.
A line of credit (also known as a “bank operating loan” is a short-term, flexible loan that a business can use as needed to borrow up to a pre-set amount of money. A line of credit is convenient for bridging gaps between the points when accounts payable are settled and accounts receivable are collected.
1. Preset Borrowing
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.
3. Built-In Flexibility
An LOC has built-in flexibility, which is its main advantage because the borrower can withdraw funds as needed up to the credit limit.
4. Drawbacks
Potential downsides include high interest rates, penalties for late payments, and the potential to overspend.
5. Qualification and Interest Rates
Your credit score and credit history will play a significant role in determining whether you qualify for a line of credit and the interest rate you'll be charged.
6. Secured or Unsecured
Lines of credit can be secured or unsecured. A secured line of credit is backed by collateral, such as a home or car, while an unsecured line of credit is not.