Line of Credit (LOC)
- Explain what a Line of Credit represents in a lending/funding model
- Name the key data elements carried on an LOC record
- Describe what increases and decreases LOC utilization
A Line of Credit is the pool of funding capacity a lender draws on to originate or fund loans. It is not a borrower's loan — it sits one level above the borrower, at the funding level. An LOC record typically carries: an LOC identifier, the funding source or funding entity, a credit/funding limit, the amount committed, the amount actually funded (outstanding), remaining available capacity, effective dates, an expiration or renewal date, and a status. Utilization goes up when loans are committed or disbursed against the line, and comes down when principal is repaid, loans are sold or transferred off the line, or funding entries are reversed. The exact structure and accounting treatment vary by lender, program, warehouse or funding arrangement, and servicing platform. Treat the model below as a teaching model, not a universal standard.
LOC-1001 has a $10,000,000 credit limit with $6,000,000 funded, leaving $4,000,000 of available capacity. Every new loan funded against that line reduces the $4,000,000.
If you only look at the borrower's loan, you can never explain where the money came from or why Finance says a funding entry is out of balance. LOC-level thinking is what connects servicing to accounting.