A credit line and revolving credit are two ways in which a company or individual can obtain the money needed to make a purchase. A line of credit is a type of revolving credit, which works similar to a credit card. Both the credit line and the revolving credit have a fixed amount available for use, and when paying the amount, the credit is available so you can use it again. A line of credit may use a guarantee to secure the loan, such as a business building, or it may be unsecured, such as a credit card.
A credit line is multipurpose, which you can use to make various types of purchases. A company can use a line of credit to cover the initial costs, to buy a business building, to pay bills when the cash flow for the company is low or to buy a company vehicle. In general, a line of credit is for expensive items. A renewable line of credit, such as a credit card, is usually for purchases of smaller companies, such as booking business trips, buying office supplies and buying a new table. Some companies establish a credit line or a revolving credit for emergency situations, while others use one or the other on a regular basis.
Guaranteed line of credit
A secured line of credit normally uses the business assets as collateral to obtain the line. An insurance loan allows the company to obtain the line, but if the company defaults on the loan, the lender has the right to recover the property that guarantees the loan. Smaller companies have to bear some kind of guarantee in order to obtain a commercial credit line.
While a secured line of credit uses a piece of property or business assets as collateral, an unsecured revolving line does not require collateral. One of the most common revolving credit lines without collateral is a business credit card. Obtaining a credit card for the company usually requires the company to have a positive credit history and high credit score, but does not require an asset to obtain the credit. Another type of revolving credit for a business is an account with suppliers that have a purchase limit and the company invoices purchases. Once the bills are paid, the available amount can be reused.
The interest rate on a secured line of credit usually has a lower interest rate than an unsecured revolving credit account. While a line of credit is guaranteed by the property of the company can have an interest rate of 10%, a revolving credit account, such as a credit card can have more than double the 23% interest rate. This is because the loan guarantee makes it less risky for the lender than an unsecured line or credit account.
How does it work?
A credit line and revolving credit work the same way. When making a purchase, the purchasing power is reduced by the amount you spend. You receive an invoice from an issuer or credit lender, usually on a monthly basis and the payment due is based on the interest rate and the amount of the line you have used. Once you make a partial payment or pay the account or line of credit, the amount you pay is available for your use. You will be charged interest only on the amount you use, so if you do not use the credit line or a revolving credit, the lender will not charge you interest.