Business Line of Credit  

A business line of credit is a set amount of funds from which you can borrow when you need cash and pay back later. It’s almost like a halfway point between a small business loan and business credit card. With a business line of credit, you are approved for a set amount of funds and can draw anywhere up to that set amount as needed. Payment terms can range from no fixed monthly payment to monthly payment. A line of credit offers businesses flexibility to manage their cash flow and meet goals.  

Business lines of credit are available from banks, credit unions, online lenders, and even the Small Business Administration (SBA). While the actual terms may vary by lender, lines of credit typically have lower maximum amounts and shorter terms compared to business term loans.  

There are secured and unsecured business lines of credit, like how traditional business loans work. In a secured business line of credit, you will put up assets such as inventory or property as collateral to secure the funding amount. Failure to repay the line of credit would result in the lender seizing those assets. In an unsecured line of credit, on the other hand, doesn’t require any upfront collateral. However, lenders may require a personal guarantee on the line of credit to protect their interests.  

A business needs sufficient working capital to operate smoothly, but sometimes that working capital can be in short supply. A business line of credit offers small businesses the ability to draw on working capital when they need it. Whether you’re waiting on payment from a client, needing to upgrade equipment, or simply want to capitalize on an opportunity, a business line of credit affords you the flexibility to meet these business needs. Businesses typically use lines of credit to optimize cash flow and prepare for fluctuating project costs.  

A line of credit can be used for almost any business expense, including: 

• Hiring new employees or covering payroll 
• Purchasing more inventory 
• Investing in equipment or upgraded office space 
• Advertising expenses 

A business line of credit has many advantages for all industries, especially industries with specific needs and challenges. 

Lines of credit for trucking companies 

Owner-operators of trucking businesses find a line of credit to be a great way to keep their business on the road. Trucking businesses use lines of credit to conduct vehicle maintenance, purchase necessary equipment, fuel up, or keep business on the road during slower periods or between assignments. 

Line of credit for construction businesses 

Construction businesses have many upfront expenses on projects. Having a line of credit on hand makes it easy to purchase heavy machinery, hire labor, or pay for insurance without sacrificing your cash flow or waiting for payment. A business line of credit is also useful during slower seasons for construction businesses so you can maintain operations in between projects. 

Line of credit for healthcare businesses 

Medical practices need top-of-the-line equipment, supplies, and employees to best serve patients. With a line of credit, medical practitioners can easily upgrade equipment and make improvements without waiting for more revenue. 

Line of credit for LLC  

Small business owners classified as a limited liability corporation (LLC) often find many benefits to using a line of credit. Purchasing more inventory or stocking up on supplies is simple with a line of credit. 

Line of credit for inventory 

No matter your industry, a business line of credit is perfectly suited for helping businesses purchase inventory. Without the steep APR a business credit card usually offers, a line of credit is a simple and accessible way to keep inventory well stocked for your business without sacrificing working capital. 

Lines of credit can typically offer lower rates compared to a business credit card. The APR can range from 10% to 90% and the interest rate varies based on lender. Generally, you can expect lower interest rates with a line of credit compared to a business credit card.  

Some fees can include: 

• Origination fee: A fee to process your application. 
• Account maintenance: Monthly or annual fee to manage your account and keep it active. 
• Draw fee: A fee charged each time you draw on your credit line. 
• Inactivity fee: Fees associated with your account being inactive for a period of time. 

A business credit card is technically a type of line of credit, but credit cards and lines of credit have some key differences: 

Line of credit	Business credit card
Higher credit limit.	Lower credit limit.
Deposits cash into your account when you draw an amount.	Primarily used for purchases. Cash advances come with a high advance fee.
May be secured by collateral.	Not commonly secured.
Typically no rewards.	Often have rewards or cash back for spending.
No interest-free period.	May include 0% interest promotion for a specific time when you sign up.
Lower interest rates.	Higher interest rates.

 

What should you choose? 

Business credit cards are a great option for smaller, consistent business expenses for newer businesses who want to establish credit. A line of credit is ideal for established businesses with larger expenses on a regular basis, or established businesses who are in a period of growth.  

Banks, credit unions, and the SBA 

Banks and credit unions can offer secured and unsecured business credit lines. You can apply for a credit line with your current bank or find an alternative credit union. Banks likely will require physical collateral to secure a credit line, as well as additional fees on the account.  

Banks can also offer SBA lines of credit through the SBA CAPline program, which offers fixed or revolving lines of credit to meet small business needs. It can be challenging for business owners to get approved for any SBA program, due to its strict requirements and popularity. 

Alternative lenders 

Online lenders can offer lines of credit in addition to small business loans. These lenders are typically easier to get approved for compared to banks or the SBA. You can also usually get approved for a line of credit quickly and get access to funds without delay.  

Requirements for business line of credit can vary. Typically, banks and lenders require a business to be open for at least six months and a minimum of fair credit to qualify for a business line of credit.  

If you’re applying for a secured line of credit, you should have an idea of what assets you can put up for collateral. It’s also a good idea to have a backup plan to pay off your line of credit.  

Applying for a business line of credit is fairly simple – you can find lenders who offer line of credit through the SmallBusinessLoans.com form and from there, submit a short application to determine what you’re qualified for.