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Business Line of Credit

Updated: Feb 13

Your business needs consistent cash flow to pay employees, cover costs and invest in projects that will grow your company.



With a business line of credit, you can spend, pay back and reuse capital as needed. Business lines of credit give you the capacity to handle emergencies and opportunities equally, offering the peace of mind and security you need to manage your business best.

“Complete our simple and secure application. Applying is fast, easy — and most importantly — won’t impact your credit.” Find out your options - Start here

Business Line of Credit


A business line of credit is a type of financing that allows you to spend, pay back, and reuse capital as you need it. Let’s say you’re approved for a $10,000 business line of credit. You don’t need to use those funds right away.


If you find you need $1,000 to buy inventory a month after approval, use $1,000 from your $10,000 credit line. You’ll only be charged interest on the $1,000 you borrowed. With a revolving credit line, as you pay back the $1,000, your credit line will increase up to your original $10,000 limit.


Needless to say, a business line of credit is a popular form of financing for many business owners and entrepreneurs. So much so that 35% of employer firms surveyed applied for this type of funding, according to the Federal Reserve Banks’ State of Small Business Credit report. Of those applicants, 71% were approved.


Revolving Credit

A revolving credit account works much like a credit card. It allows you to borrow up to your credit limit and pay back the borrowed money over time. Once you start paying off your loan, you can borrow from the line again.

For example, if you used $25,000 of your $50,000 credit limit then pay it off, you’ll have $50,000 worth of credit to draw from again.

This is different from most small business loans. With a conventional loan, business owners are given the funding upfront, and they pay it back over time. If business owners want access to funding again in the future, they have to apply for a new loan.

Advantages of Revolving Credit for Business

The key benefit that business owners get from revolving credit is that you don’t have to keep applying for loans or additional lines of credit. Once your revolving credit account is secured, it’s always there for as long as you have credit available and are in good standing.


There are additional benefits, including:


The opportunity to separate personal and business lines of credit

The ability to build business credit

More flexible payment terms

Cash on demand (in some arrangements)

The ability to use the line of credit when needed.

When Is Revolving Credit a Good Option?

A revolving line of credit can help you plan for the future, providing working capital to make essential purchases and help your business expand. With this kind of financing, there are several options to choose from. Revolving credit is often a good option in some instances:


You’re hiring new employees in preparation for growth

You need to stock up on inventory

You operate a seasonal business

You get a big new customer and may need to front some expenses

Revolving Credit Examples

Aside from business credit cards, there are 3 other types of business revolving credit you should be aware of. They are:

  1. Short-term revolving lines of credit

  2. Medium-term revolving lines of credit

  3. Bank lines of credit

Secured Business Lines of Credit

Find out your options - Start here Secured business lines of credit require businesses to back the credit line with collateral.


Collateral for a secured business line of credit is an asset that the lender can assume ownership of and liquidate to pay off the remaining balance in the event of default.


Collateral for Business Credit Lines

The most common assets used to secure a business credit line include:


  • Real estate

  • Personal or company vehicles

  • Home equity

  • Accounts receivable (e.g., unpaid invoices)

  • Inventory

  • Equipment

Unsecured Business Lines of Credit

Unsecured business lines of credit can be obtained without collateral. This means that if a business defaults on its credit line, the lender would have no pledged securities to leverage to recoup on losses.


However, lenders providing unsecured business lines of credit protect themselves by other means. This is done mostly by reducing credit limits, charging higher business line of credit rates, shortening terms and requiring a personal guarantee commitment.


Because of this, unsecured business lines of credit have their benefits and their drawbacks. On the upside, the application process is streamlined. Applicants seeking an instant business line of credit often receive a decision within hours. Funds are deposited the same day as approval in many cases. On the downside, unsecured business lines of credit typically carry higher overall costs than their secured counterparts.


Revolving vs. Non-Revolving Lines of Credit

Most business lines of credit are revolving. You can borrow more as you pay down your principal. However, some lines of credit are fixed. In other words, you’re not able to reuse funds once you’ve paid them off. Though not as flexible as a revolving line of credit, fixed credit lines typically offer borrowers lower interest rates and a predictable repayment schedule.

Pros and Cons of a Business Line of Credit?

Pros

  • Flexible credit line

  • Funds can renew as you pay down your debt

  • No collateral required in many cases

  • No interest charged until you draw funds

  • No restrictions on how funds are used

Cons

  • Draw and inactivity fees may apply

  • Possible withdrawal minimums

  • Shorter repayment terms than business term loans

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