A line of credit provides an approved limit that may be drawn as needed. As eligible balances are repaid, capacity may become available again, subject to the agreement.
Business and personal lines of credit may be available through different providers. Their uses, pricing, draw rules, and qualification standards can differ.
Revolving credit versus a term loan
A term loan usually provides one lump sum with a fixed repayment schedule. A revolving line lets the borrower draw only what is needed, repay it, and potentially draw again during the availability period.
Common business uses
- Working capital and cash-flow timing
- Inventory and business purchases
- Payroll during uneven collection cycles
- Seasonal expenses
- Unexpected repairs or expenses
- Short-term opportunities
Personal and business lines
Personal lines generally rely on personal income and credit. Business lines may consider business revenue, time in operation, bank activity, owner credit, and existing obligations. Not every provider offers both.
Costs and controls to compare
- Interest or fees on drawn balances
- Annual, maintenance, or draw fees
- Minimum payments and repayment method
- Draw period and renewal requirements
- Variable-rate provisions
- Personal guarantees or collateral
Use revolving credit deliberately
A line works best for short-duration or recurring needs that can be repaid as cash arrives. Using it continuously for long-lived purchases can keep balances high and make a term structure more appropriate.