What Is a Line of Credit and How Does It Work?

A Line of Credit (LOC) is a flexible financing option that allows businesses to borrow money up to a predetermined limit. Unlike traditional loans, LOCs offer revolving credit, meaning businesses can borrow, repay, and reuse funds as needed. LOCs can be secured (requiring collateral) or unsecured (based on creditworthiness). They are ideal for managing cash flow, covering unexpected expenses, and funding short-term business needs. Interest is only charged on the amount withdrawn, making it a cost-effective financial tool. Businesses should carefully assess their financial needs and choose the right Line of Credit to maintain liquidity and operational stability.