Business Line of Credit Explained

business line of credit

A business line of credit simply is a credit option that is often extended to a specific business by any financial institution or by any bank.

It can take several forms such as cash credit, term loan, discounting or purchase of commercial bills, overdraft, and much more.

In simple terms, it is an account created for that business that can be used by the business whenever the need comes.

It is ready at all times for any problems that may arise or can be saved over a period of time for emergencies.

The good thing is that the only interest that the user pays is on the amount that has been drawn from the account or the amount that has been used by the consumer.

If you are a customer who has good credit and needs to overcome liquidity problems or even just planning for the future and in need of credit in case of emergencies, then you might want to look around local banks and see which banks might be able to extend a loan to you.

A business line of credit is different than the ordinary business loan, with a business loan you have more accountability as to what you are going to spend the funds on.

The bank will need to know all details as to why who and even then may make out checks to your vendors.

With a business loan, you have very little control. The bank may also give you the entire amount in the beginning, which will make you obligated to start paying the amount immediately, including interest building up.

With the line of credit, you can use the money whenever you need it, and the interest only applies to the amount that you consume.

There is no fee for the money just sitting in the original account. The checks that go out to your vendors will be from you and not your bank, giving you the freedom and privacy you deserve.

A business LOC gives you the opportunity and freedom of using it however you want, whether it is to pay your employees or to start a new marketing strategy.

It can even make a big difference if you are waiting on your customers to pay you back and allow you to not let the cash flow be affected to keep things going.

The most important factor is to follow all of the rules, such as if the business is a public corporation, then the stockholders are obliged to know where the money is spent.

When it comes time for paying taxes, you might want to look into where the business LOC is for you. It can save you money by deducting the interest that you pay for any loan.

It is definitely more useful to apply for a business line of credit than for a credit card for business, as the rates are much lower.