Business Line of Credit

A line of credit for business is a flexible loan from a financial institution that gives a business access to a specific amount of money that it can borrow as needed, repay, and borrow again.

Key Features

  1. Revolving Credit: Like a credit card, once you repay the funds you've borrowed, they become available to use again.

  2. Credit Limit: The lender sets a maximum amount (e.g., $50,000) that the business can borrow at any given time.

  3. Interest on Used Amount: You only pay interest on the money you actually draw, not the entire credit limit.

  4. Flexible Use: Funds can be used for various business needs—like covering cash flow gaps, purchasing inventory, or handling unexpected expenses.

Ongoing Access: Unlike a traditional term loan, you don’t receive a lump sum. Instead, you access funds when needed.

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Types of Lines of Credit

  • Secured Line of Credit: Backed by collateral (like inventory or accounts receivable).

  • Unsecured Line of Credit: No collateral required but may have higher interest rates and stricter approval criteria.

Example

Let’s say a business has a $100,000 line of credit. It uses $30,000 to buy inventory, repays it in a month, and then has access to the full $100,000 again.