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.
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.
An LOC has built-in flexibility, which is its main advantage because the borrower can withdraw funds as needed up to the credit limit.
Potential downsides include high interest rates, penalties for late payments, and the potential to overspend.
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.
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.