A line of credit is a limit drawn when needed and paid down to reopen it, with interest only on the drawn balance. The examples here are invented: an accounting office software renewal, a retail vendor prepay, one invoice on a limit, a tax bill paid down in three steps and a POS changeover split between a loan and the line.
At a glance
- Interest
On the drawn balance only
- Limit
Reopens as it is paid down
- Who decides
The funding partner
Business lines of credit for an Edgecombe County, NC accounting office's annual software renewal
Annual renewals are the kind of bill a line of credit handles well: the amount is known, it comes back every year, and the money to cover it arrives over the following weeks. An invented Edgecombe County, NC accounting office renews its tax and bookkeeping software for $8,640 and pays the draw down in two halves, one after 30 days and one after 60.
At an annual rate of 13.35%, simple interest on the full $8,640 for the first 30 days plus $4,320.00 for the next 30 comes to about $142.20 in this invented case (our arithmetic). Professional, scientific and technical services had 39 employer establishments in Edgecombe County, NC in 2023 (County Business Patterns).
Commercial line of credit for a vendor prepay at a Tarboro, NC retail store
A vendor offers an invented Tarboro, NC retail store 3% off a $15,850 order if the store pays up front. The invented discount is worth $475.50, so the store draws the discounted price, $15,374.50, on its line.
Held for 40 days at an annual rate of 13.6%, that invented draw costs about $229.14 in simple interest, so the prepay leaves the store $246.36 ahead in this invented case (our arithmetic). If the stock sold more slowly and the draw stayed open longer, the interest would eat into that margin; the store breaks even only if the draw stays open about 83 days. For a station store's staples order, a line draw is set against a short-term loan in another article.
How to get a business line of credit: the records an Edgecombe County, NC electrician can gather
Getting a line starts with the same request as any other funding type, plus a sense of how often the business would draw. An invented Edgecombe County, NC electrician that buys wire and fittings for each job might prepare:
- Bank statements covering the recent run of jobs
- A list of current jobs and when each pays
- Existing debts and their monthly payments
- An estimate of the largest draw and how long it would stay open
- The business's legal name, entity type and years operating
Of the 70 construction employer establishments in Edgecombe County, NC, 60.0% had fewer than five employees in 2023 (County Business Patterns). The partner may check the owner's credit, and the size of any limit is its decision. Whether a line carries any pledge at all is covered in an article on collateral.
How does a commercial line of credit work? Draw, interest and paydown on one Tarboro, NC invoice
A line has a limit, a drawn balance and the room that is left. An invented Tarboro, NC business holds a $23,750 limit, draws $7,415 to pay one supplier invoice and pays it back after 28 days.
| Moment | Drawn balance | Room left on the limit |
|---|---|---|
| Before the draw | $0.00 | $23,750.00 |
| After the draw | $7,415.00 | $16,335.00 |
| After the paydown | $0.00 | $23,750.00 |
Simple interest on the $7,415 for 28 days is about $80.20 in this invented case. Some lines also carry an annual or draw fee; any offer should state them. When a customer pays early, a line and a fixed loan behave differently; this wholesaler article puts numbers on both.
A tax bill on a Tarboro, NC retailer's line of credit, paid down in three steps
An invented Tarboro, NC retailer draws $9,780 for a tax bill and pays it down in three equal steps of $3,260.00, one every 30 days.
| Period | Balance | Interest for 30 days |
|---|---|---|
| Days 1-30 | $9,780.00 | $112.14 |
| Days 31-60 | $6,520.00 | $74.76 |
| Days 61-90 | $3,260.00 | $37.38 |
The invented interest across the three periods comes to $224.28. Each paydown reopens the same amount of the limit, so the line is ready for the next bill. Paid down chair by chair, a medical supply store's draw is worked in the lift chair article.
A POS changeover at a Tarboro, NC shop: hardware on a loan, the training week on the line
A changeover has two kinds of cost. The hardware, terminals, scanners and receipt printers, has a fixed price and a life of years. The training week, extra staff hours while everyone learns the system, is a one-time cost that sales cover within weeks.
For an invented Tarboro, NC shop, the $6,620 of hardware on an 18-month loan at 12.4% has an invented payment of $404.93. The $1,920 of training hours drawn on the line for 21 days at 13.95% costs about $15.41 in simple interest (our arithmetic).
Compare the line with term loans, equipment financing and the rest on the business loans page.
By Riverview Business Loans · Updated