A business line of credit gives a limit to draw on as costs arise, with interest charged only on the drawn balance. Rockbank Capital Group, a small-business funding broker in Cookeville, Tennessee, explains draws, draw periods, revolving and non-revolving lines and how a line compares with a term loan for Putnam County owners. Whether a line is opened, and at what price, is the partner's call.
| You get | A set limit, tapped bill by bill |
|---|---|
| Interest | Charged only on what is out |
| Fits | Recurring, uneven costs |
| Watch for | Draw-period end, renewal and fees |
| Who decides | The lending partner |
Making a draw: money out, interest on
A draw is a transfer from the line to your business account, or a payment made straight from the line. Until you draw, you owe nothing on the money itself, though some agreements charge a fee to keep the line open. After a draw, interest runs on that balance until you pay it back.
Think of a Putnam County plumbing contractor who buys fixtures for three jobs at once, draws to pay the supplier, and repays when the jobs are invoiced and paid. The same limit is there for the next round.
Draw window first, repayment window after
The draw period is the window in which you may borrow from the line. Some lines run for a year and are reviewed for renewal; others have a draw period followed by a repayment period in which no new draws are allowed and the balance is paid down on a schedule. Know which kind you have before you rely on it for next year's costs.
Revolving or non-revolving?
On a revolving line, repaid amounts become available again, as with a credit card. On a non-revolving line, each draw permanently reduces what is left; once the limit is used, the line is done even if you repay. Non-revolving lines suit a project with stages; revolving lines suit a business with costs that rise and fall all year.
How interest builds on a business line
Interest is calculated on the outstanding balance, usually daily, and billed monthly. Plenty of lines float with an index rate, which means the price of a draw can change while the line is open. Ask for any draw fee, maintenance fee or renewal fee in writing; on a small balance, fees can matter more than the rate.
Revolving line against a term loan
| Line of credit | Term loan | |
|---|---|---|
| Money arrives | Whenever you draw | All at closing |
| Interest on | Drawn balance only | Full amount from day one |
| Suits | Recurring, uneven costs | One project with a lasting payoff |
| Risk | Line may not renew | Fixed schedule regardless of season |
For a one-off project, a term loan is usually cleaner. For a single gap with a clear end, working capital may be simpler to arrange.
Lines of credit for Tennessee businesses: what partners look for
- Steady deposits over several months, since the line is repaid from them
- Time in business; new firms find lines harder to open
- Credit history of the business and the owner
- Whether the line will be secured by receivables, inventory or a blanket lien
- How you plan to use and repay it
Putnam County's employers are mostly small: 45.7 percent had fewer than five employees in 2023 (U.S. Census Bureau, County Business Patterns 2023). For a firm that size, the owner's own credit and a personal guarantee usually weigh heavily in a line-of-credit decision.
Keeping a line healthy
A line that is fully drawn for months looks like a term loan in disguise, and partners notice at renewal. Pay it down when receipts arrive, keep business and personal spending separate, and use it for the uneven costs it was opened for.
See how lines fit each sector on the sector overview, the local business mix on the Putnam County overview, every structure on the comparison page, and the request steps in how a request moves.
By Rockbank Capital Group ยท Updated