A business line of credit is a borrowing limit a business draws against as costs arise, paying interest only on the drawn balance. Larkridge Funding Group, a small-business funding broker in Decatur, Illinois, explains draws, draw periods, interest and revolving versus non-revolving lines to Macon County owners, then introduces requests to lending partners, which make credit decisions and set rates and terms.
| Used for | Recurring, uneven expenses and short gaps |
|---|---|
| Structure | A limit you draw against |
| Interest | Accrues on the drawn balance alone; idle credit costs little |
| Often backed by | A general business lien; sometimes receivables or inventory |
| Local context | 285 'other services' employers in Macon County, IL, 59.3% with under 5 staff (CBP 2023) |
| Who decides | The lending partner. Larkridge's job ends at the introduction |
| Address | 134 N Merchant St, Decatur, IL 62523 · (217) 296-7415 |
Drawing on a line: what actually happens
A draw is simply taking money out of the line: the partner moves funds to your business account, or you write a check or make a transfer against the limit. If the limit is $40,000 (a hypothetical figure) and you draw $8,000, you owe $8,000 plus interest on that amount, and $32,000 remains available. Repay the $8,000 and, in a revolving line, the full limit is available again.
How the interest works
Interest on a business line of credit is normally charged only on the outstanding balance, for the days it is outstanding. That is the main advantage over a term loan for uneven needs: an untouched limit costs little or nothing in interest. Lines can also carry other charges, such as a fee to open the line, an annual or maintenance fee, or a fee per draw, so ask for the full list.
Many lines have a variable rate tied to a published index, which means the cost of the same balance can change over time. Ask how the rate is set, how often it can move and how you will be told.
When the draw window closes
Many lines have a draw period, the window during which you can take money out. When it ends, the line may renew, convert to a repayment schedule or simply fall due. A line that converts to fixed repayments behaves like a term loan from that point. Ask how long the draw period is, what happens at the end of it, and whether renewal needs a fresh review.
Revolving or non-revolving
In a revolving line, repaid amounts become available again, much like a credit card. In a non-revolving line, each draw permanently reduces what is available; once the limit is used, the line is finished. A non-revolving line can suit a project with a known total that is spent in stages. A revolving line suits ongoing operating needs.
Can you run payroll from a line of credit?
Yes. Covering payroll while receivables catch up is one of the most common uses for a line. It works best when the gap is temporary and the incoming revenue is reliable. If the line is drawn for payroll month after month without being paid back, that points to a cash flow problem that a larger limit will not solve.
Macon County's small service businesses show why the question comes up. In 2023 the county's 'other services' sector, which includes repair shops, personal services and similar trades, had 285 employer establishments, and 59.3 percent of them employed fewer than five people (U.S. Census Bureau, County Business Patterns 2023). Businesses that size often run payroll from a single account with little cushion.
The drawbacks of a line of credit
A line of credit is flexible, but it has downsides worth weighing:
- It is easy to use a line for things it was not meant for, and a balance that never falls becomes expensive debt.
- Variable rates can raise the cost of a balance you already carry.
- Fees can apply even when you draw nothing.
- The partner may review the line periodically and can reduce or close it.
- Many lines require a general lien on business assets or the owner's personal guarantee.
Matching the need: credit line, term loan or working capital
| Need | Usually fits | Why |
|---|---|---|
| Expenses that recur unpredictably | Line of credit | Draw only what you need, when you need it |
| A single large purchase | Term loan | A fixed schedule over a longer term |
| A one-time gap with a clear end | Working capital | A lump sum repaid over a short term |
For a retailer, the cost of holding stock can be the real reason for the gap; inventory carrying costs for Decatur, Illinois retailers shows how to measure it. Before signing any line, go through good questions to ask a lending partner. The full set of options is on the comparison page, sector notes are on the industries page, county data is on our Decatur, IL page, and how a request works explains our part.
By Larkridge Funding Group · Updated