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What is a line of credit?

On Behalf of | Sep 14, 2019 | Firm News

If you are thinking about starting a business in Delaware, you probably have an issue that many new business owners are dealing with: namely, funding. Starting a business is typically a huge expense, and most of us do not have thousands of dollars sitting around. One way that many business owners choose to either start businesses or expand the business they already own is with a line of credit. It is important to understand what a line of credit is and how it can help you start or expand your business. According to Credit Karma, a business line of credit operates similarly to a credit card in that is a “revolving” loan.

As opposed to a traditional business loan where you end up with one lump sum, a line of credit will allow you to borrow from it and increments up to the credit limit of the loan. Again, in this way, a line of credit is similar to a personal credit card in that you only take on as much debt as you need or want to at one time.

There are different kinds of credit lines available. Some lines of credit will require collateral, which means that you need to secure the line of credit with personal property or other assets. (Most commonly, the personal property is the business owner’s house, but there are other options.) Another way a business line of credit is different from a credit card is that  it is possible to incur interest as soon as the credit line is used. However, the interest rate is typically lower with lines of credit as compared to credit cards.