Compare Business Credit Lines

Business finances change throughout the year and sometimes unexpected expenses come up. A business line of credit can help companies access funding when they need it. Businesses are given a credit limit for a set period of time and can withdraw funds for multiple purchases or business expenses.

Business credit lines can be used for anything from supplementing wages and cash flow to making office renovations and restocking inventory.

Similar to personal loans and mortgages, there are two main categories for credit lines; secured and unsecured. Secured credit lines allow companies to use personal assets as collateral against the credit line. So if they fail to keep up with repayments, a lender can take the asset.

Unsecured credit lines don’t require companies to use collateral against the loan. Unsecured credit lines tend to be more expensive and have lower credit limits. This is because there’s a higher risk of the lender losing money if the company is unable to repay what it borrows

Business credit lines can be a useful source of funds for companies that need to borrow money several times throughout the year. For example, if you need cash to expand the business or the financial forecast predicts cash-flow shortfalls.

Use our table to compare business lines of credit and find the one that is most suitable for you.

Or read on below to find out about the different lines of credit on offer, their features and how to apply for one.

What is a credit line?

A business credit line, also known as a ‘line of credit’, allows companies to borrow money up to an agreed limit. For example, it can take a lump sum and draw down smaller amounts from the pot when needed.

Business lines of credit fall into two categories:

• Secured credit lines: a secured business line of credit requires the borrower to use their assets as collateral against the loan. The lender will take the collateral if the business fails to pay back what they borrow.
• Unsecured credit lines: an unsecured business line of credit doesn’t require the borrower to use their assets as collateral against the loan. Unsecured lines of credit tend to have lower credit limits and higher rates of interest.

How does a business line of credit work in the UK?

A business line of credit offers flexible repayments, unlike a business loan or business credit card. When you borrow money with a business line of credit, you and the lender will agree on a date when it must be repaid.

The repayments are not fixed into monthly instalments, but you must repay by the date specified in your agreement. That means that you could pay off your line of credit early without having to pay early repayment charges.

As well as this, you only have to pay interest on the money that you draw down.

For example, if you have a business line of credit from a lender for £20,000 and you only draw down £5,000 to restock inventory, you will only be charged interest on the £5,000.

There are two types of credit line agreements for businesses:

• Revolving business credit lines: allow you to keep drawing down money up to your credit limit and once it’s repaid your balance tops up again and you can borrow more money from the same account.
• Non-revolving business credit lines: allows you to draw down money up to your credit limit but once you’ve used your quota, you can’t have anymore – even when you’ve paid it back.

Common uses for a business line of credit include financing:

• new assets or equipment
• business expansion
• start up costs
• cash-flow problems

What are the advantages of a business line of credit?

Business credit lines can open up new funding opportunities for companies. The benefits of a business credit line include:

• Flexible repayments: A business line of credit can be paid off early without incurring any early repayment fees.
• Speedy application: You can apply for a business line of credit quickly online and some lenders will decide within 24 hours.
• Improve cash flow: A line of credit can help to keep your business running if you have a short-term cash flow issue such as invoices taking longer to be paid.

What are the disadvantages of a business line of credit?

There are some disadvantages of a business line of credit that are worth considering before applying. These include:

• Fixed commitment period: Lines of credit are open for an agreed period of time only, after which the account will be closed. You will have to reapply if you need to borrow more money, even if you haven’t used any funds.
• Higher interest rates: Business credit lines may have more expensive interest rates than loans or credit cards.
• Short-term financing: Business lines of credit are short-term funding solutions, so you may need to consider alternative forms of business finance if your business needs long-term funding.

Is a credit line a good idea for my business?

A business line of credit may be a useful source of finance if your company needs to borrow money multiple times during the year. For example, if you forecast that your business may have cash flow shortfalls or need funds to help it expand.

Is my business eligible for a line of credit?

The eligibility criteria for a business line of credit may vary between lenders, so it is important to check their terms and conditions before applying. Some lenders may require your business to be running for a certain amount of time or have a minimum sales threshold.

How to open up a business line of credit

Most lenders let you open a business line of credit online and will ask for the following information when you apply for an account:

• Funding amount: how much money you need to borrow and for how long.
• Business details: the name, legal status and contact details of your business.
• Business finances: including turnover, invoices and bank statements.
• Contact details: your name, address and contact information.

How much can I borrow?

Lenders may offer a business credit line of anywhere between £1,000 and £10 million. The amount your business can borrow will vary depending on the lender and your financial circumstances. Each lender will use your application to decide how much to lend your business and for what period of time.

What interest rate or APR do I pay?

The interest rate, or APR, that you pay will vary depending on the lender and your credit agreement. Overall, interest rates for a line of credit tend to be higher than interest rates for a business loan or credit card.

How long does it take to get a line of credit approved?

You can apply for a business line of credit within a matter of minutes and some lenders make a decision about your application within 24 hours.

How is a business line of credit different from a business credit card?

A business line of credit tends to be a secured type of borrowing, unlike a business credit card which is a form of unsecured lending. However, unsecured borrowing may be possible with a business line of credit, but this is less common.

Secured borrowing is when you have to use a physical asset, such as property, down as collateral as part of your credit agreement.

Unsecured borrowing doesn’t require an asset but tends to come with higher interest rates.

Common uses for a business line of credit

A business line of credit may be useful if your company experiences seasonal income. It could help cover costs such as payroll or overheads when there is a dip in your income.

Business lines of credit are also commonly used to purchase inventory.

What’s the alternative to a credit line for businesses?

Alternatives to a credit line for business include:

Alternatives to a credit line for business include:

• Asset finance: Helps businesses get funding for a specific asset, such as office supplies, new machinery or vehicles.
• Business loans: Secured and unsecured business loans allow companies to borrow lump sums and make fixed repayments including interest.
• Business credit cards: Offer businesses a fixed credit limit that can be used for everyday spending and large purchases. Most credit card balances must be paid off in full each month or will incur interest.
• Business overdrafts: Some business bank accounts come with an overdraft that can be used for day-to-day business expenses.
• Government funding: Eligible companies can apply for government grants to secure additional funding.

» MORE: What alternative finance options are there?

How does Nerdwallet’s business credit line comparison work?

Our business credit line comparison table above shows the features and services offered by each lender.

You can use our account breakdown to compare each credit line. You will be able to see available amounts, minimum turnover and available terms and decide which one could help you manage your company finances.

Business Credit Lines FAQ