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Line of Credit

Definition - What does Line of Credit mean?

A line of credit is an offer of a certain amount of credit or funds allowed to be borrowed from one party to another. The party extending the line of credit is typically a financial institution such as a bank.

In the context of the law, the party who accepts the line of credit is only legally permitted to borrow funds beneath the limit of the line of credit.

Justipedia explains Line of Credit

People and businesses often take lines of credit when they know that they will need money in the future, but they don't know exactly how much. So, with a line of credit, they can take credit whenever they need it, depending on their current circumstances. However, whatever they take, they must repay according to the terms of the arrangement.

Lines of credit can be very useful for growing businesses that need short-term funding in order to pay for inventory or other costs, but that expect to make large profits over the long term.

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