A line of credit (LOC) is an available amount of money that a lender (banks and credit unions) allows you to take. Unlike loans that you apply one time and start repaying plus the interests, the line of credits will enable you to draw money up to a given limit anytime and only pay interest for the amount you borrow. Due to its availability and flexibility, many people prefer marge de crédit entreprise over other financing methods. You don’t have to wait if you need some financing provided that you pay your debts and interests in time.
How Does Line of Credit Works?
Line of credits come in two categories, business and personal line of credits. Most companies worldwide have been using LOC to fund their project and meet working capital needs. However, the personal line of credits is less common, and people do not consider them much when sourcing for financing.
Typically, a LOC gives you a maximum amount you can easily access from a financial institution, but you don’t have to take the whole amount at once. You may decide to take any sum within the limit, pay it back plus the interests, and retake without re-applying. Credit cards are notable examples of LOC as they allow you to spend money you currently don’t have.
Additionally, you can either opt for an unsecured or a secured line of credit while applying, depending on your preferred lender and the kind of LOC you want to take. Unsecured means you don’t place any collateral while taking the debts. However, a secured line of credit requires that you put a surety. Home equity line of credit (HELOC) is an excellent example of a secured LOC where you use your home as collateral.
Re-Paying Line of Credit Debts
Typically, a LOC allows you to draw any amount of money within your limits, and repay with interests over a given period. However, this rule applies sparingly depending on the LOC you are using. For example, if you pay all your credit card dues every month, you won’t have to pay interest. Others do not offer this grace period, and you start reimbursing interests immediately you take the credits.
Similarly, HELOC offers a draw period where you only focus on repaying the interests. Once the draw period elapses, you enter the repayment period, where you refund both the remaining costs and the actual amount you borrowed.
When should you Consider Applying for a Line of Credit?
The COVID-19 pandemic pushed businesses and families to extreme financial strains. As a result, everyone is looking for ways to gain stability and finance their everyday lives again. LOC comes in handy if you want to balance your working capital and keep your business running despite the financial challenges.
Similarly, you may want to apply for a LOC if you plan to fund a project that you can’t predict its cost. That gives you a ready and flexible amount to use in your projects. The fact that you can borrow, pay and borrow again makes the deal even better.
Also, small businesses were worst hit financially by the pandemic. LOC financing is one of the best ways you can revive your business without seeking employment again.
LOC is an efficient way to cover emergency expenses in your home or business. While you don’t pay interest on the total amount the lender allows, it’s worth noting that there’s a minimum amount you may have to deposit monthly regardless of your LOC.