Line of Credit

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Fixed Line of Credit

A fixed line of credit is a line of credit for a specific amount that the lender and the borrower agree on ahead of time.

For example a lender would make $100,000 worth of credit available to the borrower. The borrower would be able to use up to $100,000 of this credit at and time but no more. The advantage a fixed line of credit gives over a loan is that the borrower would only pay interest on the credit they actually used.

Most people have fixed lines of credit and use them almost everyday and don’t realize it. Most credit cards come with a fixed rate of credit, the borrower can only use so much of credit before the credit card shuts down. As with credit cards interest is charged on the money borrowed in such an arrangement.

Fixed Line of Credit vs. Credit Card

The major difference between a fixed rate of credit and a credit card is that a line of credit is usually set up through an agreement with the lender. The fixed line of credit usually makes a set amount of money available for certain purposes.

An advantage that fixed lines of credit give over credit cards is that borrowers can negotiate a better interest rate and better terms. Many online lenders will give businesses that demonstrate good cash flow really good terms and a low interest rate on fixed lines of credit.

Another advantage go fixed lines of credit is that borrowers maybe able to negotiate with the creditor to get lower interest rates or change the terms of payment. Online lenders are often more flexible in their lending especially with businesses with a good history of repayment.

Examples of Fixed Lines of Credit  

There are several kinds of fixed lines of credit available to businesses today. An equity line of credit is based on the amount of equity a business has in a piece of real estate or equipment.

Equity is determined by subtracting the principal of a mortgage or loan on a piece of property from the property’s value. For example if a piece of real estate was worth $100,000 and it was mortgaged for $75,000 the owner would have $25,000 worth of equity available. A lender might give this property owner a fixed line of credit worth $25,000.

Other fixed lines of credit could be secured by accounts receivable or by the amount of money a borrower has in a savings or investment account. Some banks will give an account holder a line of credit equal to what is in their account.

How to Increase a Fixed Line of Credit

It is possible for a borrower to increase a fixed line of credit. A good way to do this is to get a history of paying off the line of credit. Lenders will usually increase your line of credit if they know you will pay them back.

Another way to increase a line of credit is to link it some sort of equity such as the equity in a piece of realty. Some lenders will increase a line of credit if your credit score improves substantially.

Many banks will increase a fixed line of credit if a business opens more accounts or runs more cash through existing accounts.

A fixed line of credit doesn’t have to stay that way.