A line of credit is a loan that allows you to draw money as you need it, up to the credit limit. These types of loans can be paid down and then drawn back up, depending on the structure of the line of credit, similar to a credit card.
Lines of credit are designed to meet short term working capital needs or cover operating expenses. For example, increasing your inventory to take advantage of a seasonal need or simply to get a supplier discount are both good reasons to use a line of credit. Collateral and repayment terms are typically tailored to meet the needs of your business’ cash flow cycle, but quarterly interest payments are required in most cases.