How do line of credit payments work

Every small business needs to be able to adapt to change, especially in times of growth or uneven cash flow. When you need ready access to cash and flexible terms for repaying borrowed funds, an unsecured line of credit can often be an ideal solution.

What is a small business line of credit?

Like a small business loan, an unsecured line of credit provides a business with access to money that can be used to address any business expense that arises. Unlike a small business loan, however, there’s no lump-sum disbursement made at account opening that requires a subsequent monthly payment.

A small business line of credit is subject to credit review and annual renewal, and is revolving, like a credit card: Interest begins to accumulate once you draw funds, and the amount you pay (except for interest) is again available to be borrowed as you pay down your balance. As with a credit card, the lender will set a limit on the amount you may borrow.

Using a small business line of credit

The number-one reason to open a business line of credit is to gain access to short-term funding. Most businesses use these funds to support financing for operational expenses like supplies and payroll or for increasing inventory. Cyclical businesses often rely on an unsecured line of credit as a source of off-season working capital.

Unlike many small business loans, an unsecured line of credit is not designated for a specific purpose or purchase — it's a good choice for small businesses looking for ways to better manage cash flow. Funds are typically drawn from the line of credit by using a business checking account, a small business credit card or even a Mobile Banking app.

Understanding secured and unsecured lines of credit

A small business line of credit is typically offered as unsecured debt, which means you don't need to put up collateral (assets that the lender can sell if you default on the debt). Many unsecured lines of credit come with a variable interest rate and are available for sums ranging from $10,000 to $100,000.

For amounts greater than $100,000, you may be required to secure your line of credit with a blanket lien on your assets or a certificate of deposit.

What's required to obtain a small business line of credit?

Be sure to research the specifics of any lender’s business line of credit requirements. For example, many banks will require a business to have been under current ownership for some fixed amount of time.

Rates for a business line of credit tend to be lower than those for a business credit card, which can charge more than 20% APR for purchases — and even more than that for cash advances.

Other advantages

Maintaining a line of credit in good standing may help build your business credit rating and position you for better loan terms if you seek future financing. Many small business experts suggest that first-time applicants should start a modest line of credit and pay off the debt quickly as a way of building a credit profile.

Keeping your small business finances running smoothly can often be a challenge in today’s fast-paced world. Depending on your specific business needs, a small business line of credit could be the simple solution you need to meet your goals for growth — at a pace that's right for you.

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In life, you often face major home improvement projects, unexpected costs, education expenses,

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See important information on this web page.

or the need to consolidate debt.

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Loan 1
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A home equity line of credit, or HELOC, could help you achieve your life priorities. At Bank of America®, we want to help you understand how you might put a HELOC to work for you. A HELOC is a line of credit borrowed against the available equity of your home. Your home's equity is the difference between the appraised value of your home and your current mortgage balance.

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Value of home
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Home's Equity

Through Bank of America, you can generally borrow up to 85% of the value of your home minus the amount you still owe.

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Value of home
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HELOC

For example, say your home's appraised value is $200,000. 85% of that is $170,000. If you still owe $120,000 on your mortgage, you'll subtract that, leaving you with the maximum home equity line of credit you could receive as $50,000.

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$200,000 Value of home
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$50,000 Max. HELOC

Much like a credit card, a HELOC is a revolving credit line that you pay down, and you only pay interest on the portion of the line you use.

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Available Credit
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With a Bank of America HELOC, there are no closing costs, no application fees, no annual fees, and no fees to use the funds. Plus, Bank of America offers rate discounts when you sign up for automatic payments,

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Discounts available

as well as discounts based on the funds you initially use when opening the HELOC.

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Opening Funds

And there's Preferred Rewards, which extends benefits to you as your qualifying Bank of America balances grow. The interest rate is often lower than other forms of credit, and the interest you pay may be tax deductible, but you should consult a tax advisor.

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Please consult your tax advisor regarding interest deductibility as tax rules may have changed.

Most HELOCs have a variable rate, which means the interest rate can change over time based on the Wall Street Journal Prime Rate.

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5.6%
6.3%

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Chart for illustrative purposes only.

And Bank of America offers you the option to convert $5,000 or more of your balance to a fixed rate,

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Fixed rate
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so you can take advantage of fixed monthly payments and protect yourself from rising interest rates. Continue to use your home equity line of credit as needed for the duration of your borrowing period, usually 10 years.

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Make purchase
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Once that borrowing period ends, you'll continue to pay principal and interest on what you borrowed. You'll typically have 20 years for this repayment stage. If a HELOC sounds right for you, get started today by giving us a call, visiting a financial center, or applying online at bankofamerica.com/HomeEquity.

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Home Equity
Apply now

And be sure to inquire about all the ways we can assist you with rate discounts.

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Interest Rate Discounts
Automatic Payments
Opening Funds
Preferred Rewards

No matter what large expenses you may face in the future, a home equity line of credit from Bank of America could help you achieve your life priorities.

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What would you like the power to do?®
Bank of America® logo

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Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. Sequences shortened. Screen images simulated. All rights reserved. Bank of America, N.A., Member FDIC. Equal Housing Lender © 2022 Bank of America Corporation. 4652820

Does a line of credit have a monthly payment?

credit line: With a loan, the amount you borrow is delivered in a lump sum and you must start making monthly payments (including interest charges) immediately and continue for the duration of the loan—typically 24 to 60 months.

How are lines of credit paid off?

Like a credit card, you will pay a monthly bill that shows your advances, payments, interest, and fees. There is always a minimum payment, which may be as much as the entire balance on the account. You may also be required to “clear” the account once a year by paying off the balance in full.

Is a line of credit something you pay back?

Loans. Like a traditional loan, a line of credit requires acceptable credit and repayment of the funds and charges interest on any funds borrowed. Also like a loan, taking out, using, and repaying a line of credit can improve a borrower's credit score.

What is the minimum payment on a line of credit?

The minimum payment on most lines of credit is 2% of the balance or $50, whichever amount is greater. $ dollars. * . With an interest-only payment, none of the payment amount goes toward the original amount borrowed.