Some Drawbacks of Lines of Credit
The amount on a line of credit has to be repaid if the investors are tapping a line of credit. Initially, when one is granted, the terms of the payback would also be spelled out. This is one area where potential borrowers could have difficulties after they get through the credit evaluation process.
When compared to traditional small business loans like auto loans or mortgages, lines of credits can be very expensive. This is so because the latter do not rely on residential real estate secured funding and equity or depend on any other valuable property. However, this form of funding is cheaper than payday loans and credit cards. The interest in credit-based financing is not tax-deductible in general cases.
An idle line of credit will be charged an extra fee on a monthly or annual basis by many of the banks, which would state this as a maintenance fee. Additionally, as soon as you borrow that money, the interests would begin to accumulate. Lines of credit can be drawn anytime and repaid similarly on an unscheduled frequency. To some borrowers, these extra calculations can be confusing, which is why many of them end up needing additional money management schedules to cope.