A line of credit is any credit facility extended to a business by a bank or financial institution. A line of credit may take several forms such as cash credit, overdraft, demand loan, export packing credit, term loan, discounting or purchase of commercial bills etc. It is like an account that can readily be tapped into if the need arises or not touched at all and saved for emergencies. Interest is only paid on the money you actually take out.
Lines of credit are often extended by banks and financial institutions to credit worthy customers to overcome liquidity problems.