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Open End Line of Credit

One term that many people will hear when they start seeking a line of credit is open end credit or open ended line of credit.

Open end credit is another term for a line of credit used by many financial professionals. An open end credit is a pre-approved line of credit or loan that a borrower can take advantage of at any time. As with a line of credit a person can borrow up to a certain amount of money with such an agreement.

These agreements are described as open ended because they do end when the final amount is paid off as occurs in a loan. One key difference between a line of credit and a loan is that the line of credit will be available even if no money has been borrowed.

Advantages to a Line of Credit

The advantage to an open end line of credit are obvious, the borrower will have credit available when they need it. If the borrower doesn’t need the line of credit they don’t have to use it or pay it back.

The main advantage is that the borrower will only have to pay back what they use and pay interest on what they use. This can enable an individual or business to limit the amount of debt that they take out and limit interest. It can help a person avoid situations that can lower their credit score and reduce their ability to borrow.

Another advantage is that the borrower doesn’t need to go through all the paper work needed to get a loan when they need money. Instead they simply access the line of credit through a credit card or other instrument. This means that the money is there when it is needed and can be used in emergency situations.

Open End Agreements

Most lines of credit are set up through open end agreements between borrowers and financial institutions. These agreements are called open ended because they don’t end. The line of credit is always available when the business needs it.

Businesses enter into these agreements because there are many situations when a business’s operating expenses may exceed the cash available. These agreements allow businesses to cover day to day expenses such as rent, mortgage payments, salaries, inventory costs, equipment costs and repairs when cash flow is low. Such agreements also enable businesses to cope with emergency expenses.

How to Get an Open Ended Line of Credit

Many financial institutions will give a firm that does a lot of business with them an open end line of credit. Banks will often make such a line of credit available to businesses that have several accounts or run a lot of cash through their accounts. Unfortunately most banks require good credit ratings and proof of cash flow to get an open ended line of credit.

Those businesses that can’t qualify for a line of credit from a bank maybe to get an open ended line of credit from online lenders. Many online lenders will make an open ended line of credit available to businesses that can demonstrate that they have the cash flow to pay off a line of credit.