A business line of credit sets a borrowing limit the business taps as needed, with interest due only on what has been drawn. Orchardmark Financial, a small-business funding broker in Scranton, Pennsylvania, explains draws, revolving and non-revolving lines and interest to Lackawanna County owners, and sends requests to lending partners, which decide and set every rate and term.
| Built for | Repeat costs that change in size and timing |
|---|---|
| Interest | Applied only to the balance drawn |
| Watch for | Draw period end, annual review, unused-line fees |
| Lackawanna County context | 809 retail and 218 wholesale employers (CBP 2023) |
| Who decides | The lending partner |
Drawing on a line of credit, step by step
A draw is a transfer from the line into the business account, made when you need it. If the limit is a round figure and you draw a quarter of it to pay a supplier, you owe interest on that quarter only; the rest stays available. Repaying the draw lowers the balance and, on a revolving line, restores that much room to draw again.
Lines usually have a draw period, during which draws are allowed, and a review date when the partner looks at the business again and decides whether to renew, change or close the line. Ask for both dates in writing.
Revolving and non-revolving lines
On a revolving line, repaid amounts become available again throughout the draw period. On a non-revolving line, each draw permanently reduces what is left; once the full limit has been drawn, the line is used up even after you repay. Non-revolving lines are sometimes used for a project with several stages, where the money goes out in steps but is not meant to be reused.
How interest on a business line of credit is worked out
Interest is calculated on the outstanding balance, often daily, and charged monthly. Many lines carry a variable rate tied to a benchmark, so the cost of the same balance can change over time. Some lines also charge a fee to keep the line open or a fee on the unused portion. Ask the partner for every charge that applies whether or not you draw, and for an example statement.
Can you use a line of credit for payroll in a tight month?
Usually, yes, as long as the shortfall is temporary and income will repay the draw. A line is well suited to payroll that lands before receivables, because you can draw for one pay period and repay when payments come in. If the line is drawn to its limit every month and never comes down, the business is using it as long-term funding, and partners notice at review time.
Credit lines for Lackawanna County, PA businesses
Lackawanna County had 809 retail and 218 wholesale employer establishments in 2023, along with 457 in construction (U.S. Census Bureau, County Business Patterns 2023). Those are businesses whose costs rarely arrive in even amounts:
- Retailers and wholesalers buying stock in different sizes through the year.
- Specialty contractors paying for materials before each progress payment.
- Practices covering payroll while insurers process claims.
Each sector page covers the pattern in more detail, and local figures and contacts are on the city page. For a stock purchase tied to one order, types of inventory financing compares a line with financing secured by the goods.
When a credit line beats a term loan, and when it does not
Choose the line when costs repeat and vary; choose a term loan when there is one known cost that will earn for years. Using a line to pay for a renovation leaves the balance sitting there, often at a variable rate, with a review date that could shrink the line. Using a term loan for monthly supplier bills means paying interest on money you do not need yet. For a single short gap, working capital financing is the third option.
Before signing for a credit line
- Confirm the limit, the draw period and the review date.
- Ask whether the rate is variable and what it follows.
- List every fee that applies even if you never draw.
- Find out what is pledged as collateral and whether a personal guarantee is needed.
- Ask what can cause the partner to reduce or freeze the line.
What follows the first call sets out the rest of the process.
By Orchardmark Financial · Updated
