A line of credit (LOC) is a preset borrowing limit that can be drawn up and down at any time. The borrower can draw the capital as needed, in any increments and then repay in any increment as it is no longer needed. LOCs have very few of the traditional debt components and behave a lot more like a charge card than a loan.
The main advantage to a LOC is the flexibility it affords the borrower. It is an extremely flexible way to only pay for what you need, when you need it. Usually interest is only charged on the utilized amount (sometimes there is a de minimis charge on the undrawn amount).
Banks are the main providers of LOCs because of their deposit funding and their desire to cross sell other products or services. First, because banks are typically deposit funded, the capital they are deploying is relatively cheap and stable. Deposits may be drawn up and down but the net effect is rarely a massive withdrawal. Second, the banks most active in issuing LOCs are typically large banks with multiple divisions. LOCs are commonly deployed for banks best clients or prospective clients as a relationship building tool to hopefully cross sell other products.
Funds on the other hand struggle to issue LOCs because typically their capital comes from a fund they have raised with a closed end structure and utilization levels for their deployed capital is very important. This means that the fund has a specific end date and at that point in time they must return all of the capital. Giving the fund a finite amount of time to generate returns. If funds were to deploy LOCs and could never know exactly how much will be borrowed at any particular point in time, it creates uncertainty they are usually not willing to bear.
Here is the summary table for Line of Credit:
