Business Loans

What Is A Line of Credit Loan?

Dec 09, 2015 • 2 min read
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      A line of credit loan is a great way to obtain easy access to money, it’s also a great way to build your credit.

      A line of credit isn’t traditionally called a line of credit loan, it’s usually just called a line of credit. A business line of credit is very similar to a credit card. A certain amount of credit is provided by a lender, which you can draw from at will, without having to go through the approval process each time. They’re usually paid back in monthly installments, and the installments are based on how much you’ve used.

      Let’s take a look at some of the basics of a line of credit.

      Key Differences Between A Line of Credit and A Loan

      There are some key differences between a loan and a line of credit.

      First off, when you get a loan, you have a monthly payment that usually doesn’t change very much. A line of credit, you only make payments on the amount you’ve taken out. So, if you haven’t borrowed anything, you don’t make a payment.

      Second, lines of credit are a lot cheaper than a term loan up front. In business loans, there are sometimes closing costs for larger term loans. With lines of credit, there’s usually a very small closing cost, if there’s one at all.

      Third, lines of credit are easily re-usable. Instead of having to sign another contract, once you pay off a line of credit, you can quickly use it again. This makes it very adaptable.

      Business Lines of Credit

      Business lines of credit are oft times the best financing if you have a lower credit score. The business credit line gives you access capital to meet a variety of business needs. It’s a financial buffer for a fixed amount that you can use anytime to meet a current cash flow gap.

      Business lines of credit are almost essential for every business to have. When an emergency hits, it can be hard to find any capital. If you already have the line of credit, it can be a lifesaver for you and your small business.

      One of the biggest advantages of a business line of credit is that for the most part you are not required to use the funds until they are needed and you’re only charged interest when it is used. So when you pay the line down you also eliminate the interest charged.

      Personal Lines of Credit

      Personal lines of credit work very similar to business lines of credit. You can usually find these at a local bank or credit union, and they are a great way to keep a buffer for when emergencies hit.

      As with any financial decision, be responsible and do your research. Look at different options, and find the best one for you. Try to avoid maxing out your line of credit and carrying that balance, as that could put stress on your financial situation.

      Whether for business or personal use, a line of credit is a great way to provide a buffer for any ups and downs you see along your way.

      What uses have you seen out of a line of credit?

      About the author
      Erik Larson

      Erik Larson frequently writes for Lendio about SEO, Digital Marketing, Social Media Marketing, Business Loans, and whatever else strikes his fancy. He can be found on Google+ and Twitter.

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