Line of Credit

Accounting Dictionary

Line of Credit

A line of credit is the right to borrow money at a moment’s notice.

It takes a lot of time to get a loan. It involves verifying all your assets, liabilities, income, and equity. There is a lot of paperwork and a lengthy approval process. Some companies go through the entire process even though they don’t need to borrow money right now. When they are finished, the bank will pre-approve them for a certain amount. If you have a line of credit of $50,000 that means you are approved to borrow up to $50,000 any time you want with little or no additional paperwork. You only pay interest on the amount you actually borrow, not on your total line of credit.

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