A line of credit is a flexible loan that lets a business borrow up to a set limit as needed, repay, and re-borrow, paying interest only on the amount used.
A line of credit (LOC) is revolving financing: the lender approves a maximum limit, and the business draws on it as needed, repays, and draws again. Interest is charged only on the outstanding balance, making it ideal for smoothing cash flow gaps, such as covering payroll while waiting on receivables.
An operating line is one of the most common small business financing tools. Lenders assess the business's financials and often require personal guarantees or a general security agreement. Used well it bridges timing gaps; used to fund ongoing losses, it becomes a warning sign of deeper problems.
A business with a $100,000 line of credit draws $30,000 to cover payroll while awaiting customer payments, then repays it when the receivables arrive, paying interest only on the $30,000 for the days it was outstanding.
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