Business Line of Credit
Definition
A business line of credit is a flexible financing arrangement that gives a business access to a predetermined amount of capital that can be drawn upon as needed, repaid, and drawn again — similar to a credit card but typically with lower interest rates and higher limits. Lines of credit can be secured (backed by collateral) or unsecured. Interest is only charged on the amount actually borrowed, not the full credit limit. Business lines of credit are ideal for managing cash flow gaps, covering unexpected expenses, purchasing inventory, and funding short-term opportunities. Credit limits range from $10,000 to $500,000+ depending on the lender and borrower qualifications.
Example
A seasonal retail business has a $100,000 line of credit at 12% APR. In October, they draw $60,000 to stock holiday inventory. They repay $30,000 in December from holiday sales and the remaining $30,000 in January. They only pay interest on the outstanding balance during each period — approximately $1,800 total.
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