Line of credit

A line of credit is a loan that works much like an ordinary credit card. The bank makes a certain amount available to you, and you only draw from it what you need. You pay interest on the amount you are using, not the entire amount available. There are two kinds of lines of credit: personal and commercial. Commercial lines of credit are preferable to personal lines of credit because the amount of the loan is secured by company, not personal, assets. The trade-off is that commercial lines are usually harder to qualify for. The amount that you qualify for and your interest rate will depend on the collateral you have available, your credit history, your cash flow needs, and the risk perceived by the lender.