Line of Credit

A bank loan with features similar to credit card financing where the bank agrees to a maximum amount it will loan a business, and the business draws on the money only as needed. The bank only charges interest when the business taps into the line of credit, and interest is charged only on the outstanding balance. The borrower can make payments to the outstanding balance at any time, but he or she must make a minimum monthly payment that includes accumulated interest. Most lines of credit require that the loan be completely paid off for at least one month each year.

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