Funding types

Business line of credit: flexible funding you draw only when you need it

A line of credit gives your business a limit to borrow from, repay and borrow again. Here is how it works, what it costs you in practice and how to qualify.

Best for: Uneven cash flow, ongoing needs
Speed: Fast to set up; instant to draw
Credit: Fair to good credit usually
Repayment: Pay on what you use
Collateral: Secured or unsecured

A business line of credit works like a credit card with a larger limit and usually better terms. You're approved for a maximum amount, draw what you need, and pay interest only on the balance you use. As you repay, the money becomes available again.

Why owners like it

Flexibility: use it for payroll one month and inventory the next.
Cost control: an unused line typically costs little or nothing beyond any fees.
Always ready: it's there for an emergency or an opportunity.

Types

Unsecured lines don't require specific collateral and are common from online lenders. Secured lines, often from banks, are backed by assets like receivables or inventory and may offer larger limits or lower rates.

How to qualify

Time in business (online lenders often work with younger businesses than banks do)
Steady monthly revenue
Fair to good personal credit for most lenders
Recent bank statements; banks may also ask for tax returns and financial statements

Tips

Apply before you need it. It's easier to get a line when business is good.
Use it for short-term needs and pay it down; long-term purchases fit better with term loans or equipment financing.
Ask about draw fees, maintenance fees and how often the line is reviewed.

Questions owners ask

Does a business line of credit affect my personal credit?

Applying may involve a credit check, and many lenders require a personal guarantee. Whether the account appears on personal credit reports depends on the lender.

What's the difference between a line of credit and a merchant cash advance?

A line of credit is revolving: draw, repay and draw again, paying on what you use. A merchant cash advance is a one-time lump sum repaid from future sales. Full comparison.

Industries that use this most

Each page below covers what that industry borrows for, how many independent businesses of that kind are operating, and what an underwriter looks at in that sector.