A bank line or line of credit is bank-issued access to an amount of money, most often to businesses. It extends money that can be loaned in a specified time period to the lender. It’s money on hand that doesn’t require use, but many people do use at least some of it, particularly in the business setting if company finances fluctuate in value.
Like any type of credit extended, the bank line will usually come with terms of use and defined interest rate for money loaned. There may be an actual expiration date or the line can be indefinite. People might have funds available to them for a year or more.
Since 2008 and beyond, fewer new businesses are able to obtain large bank lines of credit. A few can find special start-up loans that could get a business running, or some small banks or other lenders may have special business deals. In general though, banks are more interested in extending lines to demonstrably profitable companies.
It’s also possible for an individual to get a bank line, usually as tied to equity in a person’s home. This guarantees the loan, to a certain extent, and means people can’t remove more money than they owe in their property. Such a line is tempting to use and may have generously easy repayment terms, but these lines can also spell trouble for those who routinely overspend. It’s possible to drain property of any equity, which could significantly diminish assets. On the other hand, some people find equity lines to be useful for the occasional large expenditure.
In most cases a bank line is revolving credit. This means people can borrow money up to the amount specified, and they can borrow more if they repay some of the debt. While at no point can total debt rise above the line, except by interest accumulation, it’s possible to borrow to the line on numerous occasions, provided people make swift repayments.
Many argue a bank line is very important when businesses have different expected earnings throughout the year. A greeting card company that does the majority of its business for Valentine’s Day and Christmas, might make huge profits in the months around this time, and then have much more modest earnings the rest of the year that don’t always meet all expenses. When people can borrow what they need to cover less profitable months, they can tide businesses over until they hit more profitable time periods. Such fluctuations don’t have to be quite so pronounced, and especially small businesses may find they occasionally need a bank line to make payments today, but will easily be able to pay off money owed in the future.
The alternatives to bank lines are things like credit cards, and the two are often very similar. Credit cards are a little impersonal and may be needed for smaller expenses, but some people carry a credit card that represents their bank line. Nevertheless, there’s a more personal and developmental relationship that exists when banks offer this line to businesses, and such mutually beneficial relationships may last for years.