Line of Credit
What is a line of credit?
A line of credit is a flexible borrowing arrangement that lets a business draw funds up to an approved limit, repay them, and borrow again. Interest is charged only on the amount drawn.
Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that keeps loan balances, interest, and covenants tracked, so borrowing is reported accurately and on time.
How firms use it
- Cover short-term gaps between paying staff and collecting from clients
- Draw only what is needed and repay as cash arrives
- Track the balance, interest, and any financial covenants in the books
Why it matters for service firms
A line of credit can smooth cash flow for firms with uneven collections, but it works best as a bridge, not a permanent source of working capital. Lenders will usually review financial statements and receivables.
Frequently asked questions
How is a line of credit different from a term loan?
A term loan provides a lump sum repaid on a schedule. A line of credit lets you borrow and repay repeatedly up to a limit. The line is more flexible, but its terms and fees depend on the lender.
What do lenders look for when approving a line?
They typically review financial statements, cash flow, receivables, and the owner's credit. Clean, current books make the process faster and can support better terms.
Related terms and guides: invoice financing, accounts receivable financing, financial covenant, debt-to-equity ratio, and cash flow forecast.