What is a Commercial Line Of Credit?

A commercial line of credit (CLOC) is a business loan providing a pre-approved credit limit that you can draw against when your business needs extra money.

The amount of your commercial line of credit is determined by your business and personal credit history as well as your ability to repay the loan.

How Payments Are Determined

Advances made against your commercial line of credit are typically paid back on a monthly basis just like with a credit card. When you pay back a portion of your line, that amount is added to your “open to borrow” balance.

How Much Interest Will You Pay?

Lender’s use different formulas to determine the annual percentage rate (APR) of your commercial line of credit. Shop around to find a lender offering the most advantageous rate. And keep in mind that interest rates can be negotiated, especially if you have a strong personal and business credit rating.

Most commercial lines of credit employ a variable interest rate that is tied to some financial benchmark like the prime interest rate, the London Interbank Offered Rate (LIBOR), or similar benchmark.

Also, some lenders offer the opportunity to convert the outstanding balance of your commercial line of credit to a fixed interest rate at any time. The upside of this is that it protects you against unfavorable interest rate increases. There are two downsides, however:

1. Your interest rate does not go down if the variable rate does.

2. The amount you convert to a fixed interest rate is removed form you available line of credit which reduces the overall amount available to you for future borrowing.

Even in a down economy, lenders are willing to make commercial lines of credit available. Can you qualify? You’ll never know unless you ask.