Business Line of Credit
A line of credit gives you a standing limit to draw against when you need it, so short-term gaps do not require a new application every time.
What is a business line of credit?
A business line of credit is a revolving facility with an approved maximum limit. You draw what you need, pay interest only on the outstanding balance, and the repaid amount becomes available to draw again.
It behaves less like a loan and more like a standing option to borrow. A business approved for $75,000 might draw $20,000 to cover a payroll cycle, repay it over six weeks, and still have the full limit available for the next gap. That is the core difference from a term loan, where the money arrives once and the facility closes when it is repaid.
Lines fall into two broad types. Unsecured lines rely on business performance, credit and a personal guarantee. Secured lines are backed by collateral such as receivables, inventory or a blanket lien, and typically carry lower pricing and higher limits in exchange.
Who a line of credit may suit
- Businesses with recurring but unpredictable gaps. If the need arises several times a year but never on the same schedule, a standing limit is more practical than repeated applications.
- Businesses with receivables to bridge. Companies invoicing on net-30 or net-60 terms can draw at invoice, repay at collection, and only pay for the days the money is out.
- Owners who want a reserve in place before they need it. Approval is generally easier to obtain when the business is stable than when it is under pressure, so many owners establish a line early and hold it unused.
- Businesses with reasonably documented finances. Lines usually require more supporting documentation than a revenue-based product, so books that are current and organised help.
How a business line of credit works
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You are approved for a maximum limit
The provider sets a ceiling based on revenue, credit, time in business and, for secured lines, the value of the collateral.
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You draw only what you need
Draws are usually requested online and transferred to your business bank account. Undrawn funds cost nothing beyond any maintenance fee.
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Interest accrues on the outstanding balance
Charges apply to the drawn amount for the days it is outstanding, not to the full limit.
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Repayment restores availability
As the balance is repaid, the limit is replenished. Most lines run for a defined period and are then reviewed for renewal.
Common uses for a line of credit
- Bridging the wait between invoicing a customer and being paid
- Smoothing payroll across an uneven month
- Buying inventory opportunistically when a supplier discounts
- Covering the deposit and mobilisation costs of a new contract
- Holding an emergency reserve for equipment failure or a lost receivable
- Managing quarterly tax or insurance payments without draining the operating account
Potential advantages
- You pay for what you use rather than for the full approved amount
- Reusable without a new application for each need
- Generally lower cost of capital than short-term revenue-based products
- Useful as a standby reserve even when the balance is zero
- Responsible use and on-time repayment can help build business credit history
Things to weigh carefully
Financing is a commitment. These are the points worth understanding before you accept an offer.
- Documentation requirements are heavier than for revenue-based products
- Draw fees, maintenance fees and minimum-draw rules can add cost that the stated rate does not show
- Variable rates mean the cost of a long-held balance can move
- Limits are reviewed periodically and can be reduced if performance declines
- A revolving facility used continuously at its limit is functionally a term loan at a worse price
- Most lines require a personal guarantee, and secured lines place a lien on business assets
What providers typically review
- Time in business, commonly one year or more for a line
- Annual revenue and month-to-month consistency
- Personal credit of the owners and any business credit history
- Existing debt obligations and available collateral
- Financial statements, and for larger lines, a receivables ageing report
- Industry and entity structure
Documents commonly requested
- Six to twelve months of business bank statements
- Business tax returns, often for the most recent one to two years
- Profit and loss statement and balance sheet
- Accounts receivable and accounts payable ageing reports
- Business formation documents and EIN confirmation
- Photo ID and personal financial details for owners with 20% or more ownership
When comparing lines, ask for the full fee schedule alongside the rate: draw fees, monthly or annual maintenance fees, minimum draw amounts, unused-line fees and prepayment terms. Two lines with the same rate can carry very different real costs.
Line of credit compared with other options
| Line of credit | Term loan | Merchant cash advance | |
|---|---|---|---|
| Access to funds | Draw repeatedly up to a limit | One lump sum | One lump sum |
| Cost applies to | Only the drawn balance | The full principal | The full specified amount |
| Best for | Recurring, uncertain needs | A single defined project | Urgent needs with card-heavy sales |
| Documentation | Moderate to heavy | Moderate to heavy | Light |
| Speed | Moderate | Moderate | Faster |
Business Line of Credit: frequently asked questions
What is the difference between a business line of credit and a business credit card?
Both revolve, but a line of credit generally offers higher limits, transfers cash directly to your bank account, and prices draws as borrowing rather than as a cash advance. Cards are better for everyday purchases and often carry rewards; lines are better for payroll, supplier payments and anything a card cannot pay.
Does an unused line of credit cost anything?
Often nothing, but not always. Some providers charge a monthly or annual maintenance fee, and some commercial lines charge an unused-line fee on the undrawn portion. Confirm this before signing so a dormant reserve does not quietly accrue cost.
How is a secured line different from an unsecured line?
A secured line is backed by collateral — commonly accounts receivable, inventory or a blanket lien on business assets. That security usually buys a lower rate and a higher limit, at the cost of pledging assets and accepting reporting requirements. Unsecured lines skip the collateral but generally price higher and cap lower.
Can I get a line of credit as a newer business?
It is harder. Most providers want to see at least a year of operating history and consistent revenue before extending a revolving facility. Newer businesses more often start with a revenue-based product or a short term loan, then qualify for a line once the track record exists.
What happens at the end of the draw period?
Many lines run for a fixed period and are then reviewed. If performance has held up, the line is typically renewed, sometimes at a higher limit. If it is not renewed, the outstanding balance usually converts to a repayment schedule. Ask what happens at renewal before you rely on the line long term.
Have a question that is specific to your business? Start an application and review the options available to you.
Apply NowOther financing structures to compare
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Working Capital
Financing used to cover day-to-day operating costs — payroll, rent, suppliers and inventory — when revenue and expenses fall out of step.
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Merchant Cash Advance
A purchase of a portion of your future sales, repaid as a share of daily or weekly receipts rather than a fixed monthly instalment.
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Business Term Loans
A lump sum repaid in scheduled instalments over a fixed period — the most predictable way to fund a defined, one-time investment.
Ready to explore business line of credit?
Start your application and see what financing solutions may be available for your business.