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Business line of credit LOC
Also called LOC, revolving line, credit line, revolver.
A facility you can draw on, repay and draw again up to a limit, paying for what you use rather than for the whole limit.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
A true revolver has a limit, a draw mechanism, interest charged only on the drawn balance, and availability that restores as you repay. Fees typically include a draw fee, a monthly or annual maintenance fee, and sometimes an unused-line fee on bank facilities. Bank lines carry covenants, annual renewal and often a requirement that the line be rested at zero for a period each year.
Fintech lines look similar and frequently are not. In many, each draw becomes a fixed-term installment obligation repaid daily or weekly over a set number of months, with a flat fee applied per draw rather than interest on a balance. Availability restores only as that draw is repaid. The economics resemble a series of short loans with a shared limit.
Lines suit recurring, self-liquidating needs: buying inventory ahead of a season, covering payroll while an invoice matures, bridging a receivable. They suit permanent capital needs badly, because a limit that is permanently drawn is a term loan with an annual renewal risk attached.
Two structural risks belong in any comparison. Most lines are demand facilities or contain material adverse change language, so availability can be reduced or withdrawn, and this happens most often when conditions turn, which is when the line is needed. And an all-assets filing behind a line can block other financing even when the line is undrawn.
Where this one catches people
Undrawn is not guaranteed. Lenders can and do cut limits, freeze draws or decline to renew, and covenant breaches or a deteriorating borrowing base give them the contractual right to do it. Treating an unused line as a cash reserve for an emergency assumes the lender's assessment of you will be unchanged at the moment the emergency arrives.
Worked through
A 100,000 line with a 2 percent draw fee. Draw 40,000 and pay 800 at draw. If the structure is a true revolver at, say, prime plus a spread, you pay interest only on the 40,000; if each draw amortizes over 12 months with the fee charged per draw, you cannot re-borrow the repaid portion until it has been repaid, and a second draw carries its own fee.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Business line of credit — common questions
What does business line of credit mean?
A facility you can draw on, repay and draw again up to a limit, paying for what you use rather than for the whole limit.
Where does business line of credit catch people out?
Undrawn is not guaranteed. Lenders can and do cut limits, freeze draws or decline to renew, and covenant breaches or a deteriorating borrowing base give them the contractual right to do it. Treating an unused line as a cash reserve for an emergency assumes the lender's assessment of you will be unchanged at the moment the emergency arrives.
Is business line of credit the same as an interest rate?
Business line of credit is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does business line of credit apply to?
Working Capital, Business Line of Credit, SBA Loan, Asset-Based Lending.
Is there a worked example of business line of credit?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside business line of credit?
Asset-based lending, Borrowing base, Covenant, Draw fee, Material adverse change.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.