Lines of Credit: A Lifeline
A line of credit is an amount of money a bank gives to a customer, like a loan. You can apply for a line of credit to places like Wells Fargo by going online, talking over the phone, or even going in person to the bank. Before qualifying you will be asked questions about your business and whether or not you would be likely to pay the amount back after using it. A line of credit can be used for a business to buy new machines and supplies to increase production and sales. It is also used to pay for advertisement and to expand a business by adding more stores.
A person can use their home equity as collateral for a line of credit. Your home equity is how much your home is worth and if you do not repay the line of credit you risk your home being foreclosed. It is used to make renovations, pay for college, or even buy a new vehicle. A line of credit is used like a credit card to make transactions.
The consumer has a period of time to use the money called the draw period and then after that period they have a repayment period where the money and interest must be re-payed in time. If the business does not use all of the credit they were given, then they are not charged for that portion of the loan. You should talk to someone about the closing costs to help make a decision on the lender you chose.
To avoid overdraft fees you should look into overdraft lines of credit. When you spend all the money you have, you can borrow money and pay it back with interest instead of paying for the overdraft fees. Lines of credit have limits depending on the bank you use and your qualifications for credit. So be careful and take lines of credit seriously when doing business.
