Line of credit or commonly referred to as credit line is basically a loan provided by a lending institution without collateral for a particular time frame. This line of credit is chosen before the transference of any credit. You may or may not take all the loan money; generally you are under no lawful duty to borrow the money at any specific time, instead you can cash your credit whenever you need within the per-defined period. Owing to this reason it is also known as open-end credit. This line of credit is normally availed by the corporate class who are required to clear specific bills, but owing to unstable business are not assured of their revenue.
When you cash your line of credit, you are merely to give interest on the sum you have borrowed, instead of the whole amount or the total line of credit. Moroever, if you repay the amount drawn within the particular time frame, you can draw that money again.
Although line of credit is an effective agreement between the lender and the borrower yet it is the latter who is the major beneficiary. Usually, a line of credit is not insured by any collateral; however some kinds of line credits require security like HELOC or Home Equity Line Of Credit and other secured loans. The one which demands security and the one which do not, have their merits and demerits. If you do not want to keep any of your pricey possession as collateral, then you must go for unsecured line of credits. But if you want to borrow loan on minimum interest rate, then you should get a secured line of credit.
Line of credit actually acts as a soft cushion in many cases. If you get this loan, you may or may not cash it for a very long time, as mentioned earlier. Hence, this consequently will relieve you of any worries and you can concentrate more on expanding your business. As, in case you get into a financial trouble you can have a stable source to catch on in form of line of credit. The best thing about this type of loan is that you will be charged with interest on only that credit which you drew. This can save you a lot of extra payment and you can leave the credit in your account untouched for as long as you want.
Lastly, this line of credit, without doubt is a straw to catch on in time of need.
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