Business Line of Credit

An approved limit you can draw against whenever you need to, repay, and draw again, paying interest only on what is drawn for the days it is drawn. A $50,000 line with nothing drawn costs little or nothing. The same line drawn to $20,000 for three weeks to cover payroll while a customer pays costs three weeks of interest on $20,000, and then it is available again.

It is the product built for a gap that opens and closes: a slow-paying customer, a seasonal dip, a progress draw in an owner's payment cycle, the month between a supplier invoice and the sale. Every other product on this site funds one amount once. This one funds the pattern.

A lender that approves a line is exposed to whatever you draw later, on a business that may look different by then. So it gates harder than any product here: a personal score around 600 with non-bank providers and higher at a bank, a year or two of trading, clean statements with no negative days, and no permanent reliance on advances.

That is why the time to apply is a good quarter, not the week of the shortfall. A line applied for in August against July's statements is approved on the best numbers of the year; the same application in the trough is declined or shrunk. Businesses that have one describe it as the product they wish they had set up a year earlier.

Interest on the drawn balance, for the days it is drawn. That is the defining feature and the reason it is the cheapest shape for a recurring gap. It is not the only charge: annual or monthly maintenance fees, per-draw fees, and non-utilisation fees on the undrawn portion all exist, so an unused line is not automatically free. Ask for every fee in writing.

The comparison that matters is against the alternatives for the same gap. A $20,000 draw for three weeks, six times a year, costs a fraction of six separate short-term advances for the same money — and the advances are what a business without a line ends up using.

Secured means specific assets — receivables, inventory, equipment — back the line, which buys a lower rate, a higher limit and an easier approval. Unsecured means none do, which is faster and safer for you but smaller and dearer. Unsecured rarely means no personal guarantee: most small-business lines carry one either way.

A line secured on receivables is the traditional shape for contractors, staffing firms, manufacturers selling to big retailers and anyone else who is permanently owed money on terms.

A business credit card is easier to get, better for everyday purchases and often carries an interest-free period; it gives purchasing power, not cash, and its cash advance rate is punishing. A working capital loan is one amount, once, funded in days, for a defined need. A line gives cash, repeatedly, at a lower rate than a card and a lower total cost than repeated loans, in amounts a card will not reach.

Most businesses should have a card and a line for different jobs, and use the working capital loan for the one-off gap the line does not cover or the year before the line is approved.

Any gap that repeats. A restaurant's January. A landscaper's March and its snow salt in October. A contractor's draws. A brokerage between closings. A practice waiting on payers. An ecommerce store's Q4 stock. A cleaning company fronting sixty days of payroll on every new account. A liquor store's holiday order under a state cash law.

We have written one guide for each of those, and the recurring advice in every one is the same: bridge this one with working capital if you must, and set the line up before the next one.

Providers review lines periodically and can reduce or withdraw them. The usual reasons are visible in the account: falling deposits, negative days, a line that is permanently drawn to its limit, a new UCC filing from another funder, or a drop in the owner's personal credit. A line that is drawn and repaid on a rhythm reads as a business using the product as designed; one that is maxed for a year reads as a business that is short, and gets priced or cut accordingly.

Stacking a cash advance on top of a line is the single most common way a line gets reduced. The advance's UCC filing and its daily debits are both visible to the line's provider.

Unsecured, rarely: this is the product where the score genuinely gates the decision. Secured lines against receivables, inventory or equipment reach lower scores. Revenue-based funding has no score floor at all. If credit is what is stopping you, the realistic route is a working capital loan or an advance now, twelve months of clean statements, and a line then.

How often you can draw, minimum draw amounts, per-draw fees and minimum interest periods are the structural details that decide whether a line is cheap in practice or only on paper. Read them before the rate.