Business Line of Credit: What It Is and How to Get One
Last updated Oct 18, 2024
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A business line of credit is a type of small-business loan that gives access to a pool of funds to draw from when you need capital. It gives you the flexibility to borrow up to a set amount—typically anywhere from $1,000 to $500,000 or more—whenever you need access to capital. You don’t make payments or incur interest until you actually tap into those funds.
A business line of credit can help you handle cash flow gaps, access more working capital, address an emergency, or take advantage of a business opportunity.
Ready to shop and apply? If you’re already familiar with the basics of a business line of credit, then you can jump right to comparing the best business line of credit lenders.
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How Does a Business Line of Credit Work?
Types of Business Lines of Credit
A business line of credit can be secured or unsecured.
Secured business line of credit. A secured line of credit is backed by physical collateral, such as inventory or equipment. If you can’t repay your credit line, your lender can seize your assets to recover their losses.
Unsecured business line of credit. An unsecured credit line doesn’t require physical collateral. Some lenders, however, will still require a personal guarantee or a UCC lien on your business assets.
Because secured business lines of credit help mitigate risk for the lender, they tend to have more competitive rates and terms than unsecured options. Unsecured lines of credit, however, can still be a good option for those who need fast access to capital—as well as for new companies that don’t have enough collateral to offer.
Pros and Cons of a Business Line of Credit
A business line of credit can be a good option for working capital needs, but may not be right for every business or situation. Here are some benefits and drawbacks to consider:
Only pay interest on the funds you draw
Flexible funding; can be used for a variety of short-term needs
Can be accessible to startups and borrowers with bad credit
May have to pay additional fees (draw fees, account maintenance fees, etc.) that increase the total cost
Not suitable for large purchases or investments
Can have shorter repayment terms than more traditional loans
Ideal Qualifications for a Business Line of Credit
How to Qualify and Apply for a Business Line of Credit
If you think a business line of credit is the right option for you, follow these steps to see if you qualify and start your application.
Determine what type of funding you need
Because secured business lines of credit help mitigate risk for the lender, they tend to have more competitive rates and terms than unsecured options. Unsecured lines of credit, however, can still be a good option for those who need fast access to capital—as well as for new companies that don’t have enough collateral to offer.
Evaluate your qualifications
Because secured business lines of credit help mitigate risk for the lender, they tend to have more competitive rates and terms than unsecured options. Unsecured lines of credit, however, can still be a good option for those who need fast access to capital—as well as for new companies that don’t have enough collateral to offer.
Compare lenders
Because secured business lines of credit help mitigate risk for the lender, they tend to have more competitive rates and terms than unsecured options. Unsecured lines of credit, however, can still be a good option for those who need fast access to capital—as well as for new companies that don’t have enough collateral to offer.
Complete and submit your application
Because secured business lines of credit help mitigate risk for the lender, they tend to have more competitive rates and terms than unsecured options. Unsecured lines of credit, however, can still be a good option for those who need fast access to capital—as well as for new companies that don’t have enough collateral to offer.
