Loans and Financing
Business Line of Credit: What It Is & How It Works
Learn everything about business lines of credit, including how they work, their benefits, and key considerations. Decide if this flexible financing solution is right for your needs and explore how to find the best line of credit for your business.
What Is a Business Line of Credit?
It’s a flexible financing option that gives businesses access to a set pool of funds, which can be used as needed. Interest is only charged on the amount borrowed. This revolving credit line helps businesses manage cash flow, tackle unexpected expenses, and take advantage of growth opportunities effectively.


How Does a Business Line of Credit Work?
A business line of credit provides a set amount of funds that can be accessed whenever necessary, allowing businesses to borrow and repay within the established limit. Interest is charged only on the amount borrowed, offering a flexible way to manage cash flow and address unexpected expenses.
How to Use a Business Line of Credit
Lines of credit can assist in managing cash flow, covering operational expenses, or bridging financial gaps during slower periods. They also serve as a valuable tool for funding short-term projects or seizing unexpected opportunities without the commitment of a long-term loan.
Cover Seasonal Expenses
Companies facing seasonal revenue fluctuations can depend on a line of credit to manage cash flow during slower months, ensuring they can cover payroll and essential operational expenses..
Purchase Inventory in Bulk
Businesses can use a line of credit to buy inventory in bulk at discounted prices, helping them reduce costs and increase profit margins without depleting their cash reserves.
Fund Marketing Campaigns
A line of credit can provide the funds needed for short-term marketing campaigns, allowing businesses to promote new products and drive sales growth without a large upfront investment.
Revolving vs Non-Revolving Lines of Credit
Lower Interest Rates and Favorable Terms
SBA Loan rates are generally lower and come with longer repayment terms than traditional loans, making monthly payments more manageable and reducing financial strain.
Flexible Use of Funds
An SBA Loan can meet a range of business needs, including purchasing inventory, acquiring equipment, covering operational expenses, or financing expansion. This flexibility allows businesses to direct funds where they are most needed.
Why Apply for a Business Line of Credit?
Pros & Cons of
Lines of Credit
Pros
- Revolving Credit
- Builds Credit History
- No Collateral Required (in Some Cases)
Cons
- Variable Interest Rates
- Annual Fees and Maintenance Costs
- Frequent Reassessment by Lenders

Is a Business Line of Credit Right For You?
Lines of credit provide businesses with flexible funding and quick access to capital, making them an excellent choice for managing cash flow needs. However, it’s important for businesses to evaluate all financing options to ensure they select the one that aligns best with their financial goals and operational needs.
Additional Loan and Financing Options to Consider

SBA Loan
An SBA Loan is a financing option designed to support small businesses, backed by the U.S. Small Business Administration (SBA). The government’s partial guarantee reduces lender risk, allowing businesses to access funds with more favorable terms, including lower interest rates and extended repayment periods.
Revenue Advance: A Flexible Lending Alternative
A revenue advance offers upfront cash based on projected future sales, with repayment tied to a percentage of daily earnings. It can be a better option than an SBA loan due to its faster approval process and flexible repayment structure linked to sales. Unlike a small business loan, which requires fixed monthly payments, a revenue advance adjusts repayment based on daily income.

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Minimum Eligibility Requirements
Time in Business
Minimum 1 Year
Business Annual Growth Revenue
No minimum
Business Checking Account
Yes
US Citizen/Based Company
Yes
FICO Score
500+
Other Financing
None
Bankruptcies
None preferred
Business Line of Credit FAQ
Obtaining a business line of credit isn’t inherently easy or difficult—it largely depends on your business’s financial health and the lender’s requirements. Companies with a solid credit history, consistent cash flow, and well-organized financial documentation typically find it easier to qualify. For newer businesses or those with inconsistent financials, it may require more effort, but alternative lending options are available to help fill the gap.
Several factors influence business line of credit rates, including the company’s creditworthiness, the amount of collateral (for secured lines), and current market interest rates. Businesses with strong credit, consistent cash flow, and substantial assets often secure more favorable terms. Unsecured lines usually have higher rates because of the greater risk to lenders. Additionally, rates can vary depending on the lender’s policies, so it’s wise to shop around and compare offers before committing to a line of credit.
A business line of credit is intended for business-related expenses, so using it for personal purposes is typically not allowed. Doing so may breach the terms of your credit agreement, potentially resulting in financial or legal consequences, especially if the lender finds out. Keeping personal and business finances separate not only ensures adherence to the agreement but also simplifies bookkeeping and safeguards your credit.
It can impact your credit score, but the effect depends on the type of credit score being considered. For a business credit score, making timely payments on a business line of credit can improve it, while late payments can lower it. If a personal guarantee is required, it may also influence your personal credit. Always verify whether the lender reports to business, personal, or both credit bureaus to understand where the impact might occur.
The interest paid on a business line of credit is generally tax-deductible, but only when it’s used for valid business expenses. This includes costs related to operations, equipment, or other business-related needs. The IRS has specific rules, so it’s wise to consult a tax advisor to ensure your deductions comply with regulations and to maximize potential tax benefits.
Business lines of credit can differ significantly depending on the lender, the business’s creditworthiness, and its financial standing. Some lines may be as low as $10,000, while others can exceed $1 million for businesses with substantial assets and strong credit. Lenders evaluate your financial information to decide the amount they’re willing to offer, so providing thorough documentation can help you secure a larger credit line.
A secured business line of credit requires collateral—such as inventory, equipment, or real estate—which serves as a safety net for the lender. Due to this added protection, businesses can typically secure higher credit limits and lower interest rates compared to unsecured lines. This option is advantageous for businesses with significant assets and can reduce financing costs over time.
An unsecured business line of credit does not require collateral, so there’s no need to pledge assets for approval. Instead, lenders depend on the business’s creditworthiness and cash flow to assess risk. While this option is often more attainable for companies without assets to secure a line, unsecured lines of credit usually have lower limits and higher interest rates to offset the increased risk.
For new businesses, securing a line of credit can be difficult, as lenders typically favor a proven financial track record. Establishing business credit over time, maintaining a solid personal credit score, and preparing detailed financial documents can improve the chances of approval. Startups might also explore secured options or seek out community banks and lenders that specialize in working with newer businesses, as they may offer more flexible requirements.