Line of Credit

A line of credit (LOC) differs from a standard term loan in one important way: the borrower does not take the full amount upfront. Instead, the lender commits the capacity, and the borrower draws only what is needed, when it is needed. Interest typically accrues only on the amount actually drawn, not on the full committed limit.

For families managing complex wealth through a structure like a single family office, a LOC serves as a liquidity cushion. It can bridge the gap between a capital call — a request from a private fund for the investor's committed cash — and the sale of a liquid asset, avoiding a forced sale at an inopportune time. Liquidity management is one of the core operational challenges a family office is built to solve.

Consider a family that has committed capital to several private equity funds. Capital calls can arrive with short notice. Rather than keeping large sums idle in cash, the family maintains a LOC to fund those calls quickly, then replenishes the line when other assets are monetized. This is a common approach to balancing yield and readiness.

A LOC is sometimes confused with a pledge line or margin loan, which are secured against specific securities. A general LOC may be unsecured or secured by a broader pool of assets. Readers should work with qualified attorneys and lenders to understand the terms, covenants, and collateral requirements of any borrowing facility.