What’s a Business Line of Credit?
A line of credit is a flexible financial tool that allows businesses to draw funds when needed. Businesses can borrow any amount within a set credit limit for any business purpose. As a business repays, the credit becomes available for use again. Interest is generally only charged on the amount of funds borrowed.
Get Access to Funds Fast
Get the funds you need for your business's day-to-day operations. Cover payroll, inventory, and other immediate expenses.
Cover Emergency Expenses
A business line of credit can offer a financial safety net for businesses in case of sudden working capital demands or an important credit resource when an opportunity presents itself.
Line of Credit vs. Loan
Both lines of credit and loans help small businesses with cash flow, but there are some key differences.
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Revolving credit; borrow as needed up to the credit limit.
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The lump sum loan is disbursed upfront.
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Ideal for managing cash flow, covering short-term expenses, or seizing opportunities.
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Typically used for specific purposes like purchasing equipment, property, debt consolidation, and long-term debt.
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Interest is generally charged only on the amount used.
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Interest is charged on the total loan amount from the beginning and could be calculated as a simple rate or an annual rate.
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Businesses have to pay minimum monthly payments based on the amount borrowed.
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Fixed monthly payments typically start immediately, regardless of usage.
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As you repay, the credit becomes available again.
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Not renewable; a new loan application is usually needed for additional funds.
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Can be secured or unsecured. Unsecured options are available up to $1.5M
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May require security, depending on lender policy. Unsecured term loans are usually paid back over short terms.
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Best for businesses seeking working capital support.
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Suitable for businesses with specific, one-time funding needs.
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Business Line of Credit FAQs
What is a line of credit?
A line of credit is a flexible financial tool businesses can use to fund daily or emergency expenses. You have the freedom to borrow any amount within your credit limit. Also known as a revolving line of credit, as borrowed amounts are repaid, your limit will reset, and your funds will be available again up to your predetermined limit.
What can I use a business line of credit for?
A business line of credit is ideal for short-term immediate needs. You can cover payroll, operational expenses, and any other business expenses. A line of credit is also a great way to prepare for setbacks like an unexpected expense or to support the working capital required to take on new contracts won.
What do I need to know before applying for a business line of credit?
Before applying for a credit line, you should understand how you intend to use your line of credit and how to choose the right lender. Different lenders prefer different industry types - you want to choose a lender with a track record of approving applications for your business type and credit score.
What is the biggest benefit of having a line of credit?
The biggest benefit of a business credit line is flexibility. You can get immediate funds to cover day-to-day expenses. Once you repay borrowed funds, your limit will be restored. This flexibility offers businesses convenience and security to keep things running despite setbacks.
How do I qualify for a business line of credit?
Eligibility criteria for a business line of credit differs from lender to lender but can accommodate established businesses as well as those who don’t have financials. Typically, you will need a credit score of at least 550 and have been in business for at least 2 years.
What's the application process for a business line of credit?
The requirements for obtaining a business line of credit can vary depending on the lender. Unsecured applications up to $500,000 can be done in minutes over the phone and require no documents. Applications for a bank overdraft will require full financials and tax records and take longer to get approved, but will have the lowest rates.
How is interest applied to a line of credit?
Interest is charged only on your borrowed amount. For instance, if you borrow $30,000 out of your $100,000 limit, you will only be charged interest for the $30,000.
What happens if you don't use your line of credit?
You’re allowed to use your line of credit in any way. If you have no extra expenses for the time being, you can simply not use your line of credit. Some lenders will charge monthly fees and line fees, so if you anticipate there being periods of time you don’t need to use your line of credit, you should select a lender who doesn’t charge line fees to minimise your facility costs.
How long do I have to pay back a line of credit?
The time it takes to pay back your line of credit depends on the lender’s policy. Some lines of credit amortise over short periods, whereas others will have a minimum direct debit repayment that pays the balance down over the years. In all cases, you can always make more payments above the minimum.
Can you close a line of credit?
If you’re not using your business line of credit, you can typically close it by notifying your lender and paying your outstanding balance and other required fees.
Can you increase your line of credit limit?
It is possible to increase your line of credit limit. Limit increases depend on a lender’s policy and your business performance. We recommend you speak to us before a limit increase to maximise your chances of approval.
Can you use a line of credit for a business startup?
Yes, startup businesses can apply for some lines of credit and be approved. While unsecured overdrafts are typically only available to businesses that have been trading for 2 years, invoice finance and secured lines of credit can be set up for new businesses.