A Line of Credit operates in a similar way to a credit card: only pay for what you USE and for however LONG you require it. DO NOT pay for money that you aren’t using!
You, the borrower, are approved for a maximum loan balance that a lender allows you to borrow against. You can access a portion of the line of credit at any time, on condition that you do not exceed the approved amount set forth in the agreement and also satisfy any other requirements, such as making required periodic payments.
Credit lines are most ideal for those borrowers whose financing needs vary.
BENEFITS OF LINES OF CREDIT:
When unsure of the budget required for a project, with a line of credit, you don't have to use the entire amount and will only pay interest on the amount you use at any given time.
Lines of credit can assist young companies in having a more reliable cash flow to take care of unpredictable expenses.
YOU can control how much interest you pay by controlling how much of the line of credit you use and only pay interest on what you use while still having the security of having funds available to you.
Lines of credit do not require collateral.
If you need collateral to purchase inventory when starting a business, a line of credit can give you the leverage you need!