What is a business line of credit?

A business line of credit is a flexible way for small businesses to borrow money when they need it. Instead of taking out a lump-sum loan, you get access to a set amount of funds (your credit limit). You can draw from it, repay, and borrow again — paying interest only on what you actually use.

How do business lines of credit work?

A business line of credit gives you a pool of money to tap into whenever your business needs it. You’re approved for a maximum amount, and you can borrow, repay, and borrow again — as long as you stay within that limit.

Here’s the key idea: you only pay interest on what you use. So if you’re approved for $30,000 but only draw $5,000 to cover payroll, you’ll just pay interest on that $5,000. Once you pay it back, the full $30,000 is available again.

Credit limits vary, often ranging from $10,000 up to $250,000. Many smaller lines are unsecured (no collateral required). Larger lines may be secured with a blanket lien on your business assets or a certificate of deposit.

Cons

Variable rates – Interest can rise over time and may be higher than traditional term loans.
Fees – Some lenders charge monthly or annual maintenance fees which can add to the cost of borrowing.
Risk of overborrowing – Easy access to cash can lead to overspending or mounting debt.

Pros

Flexible – Get quick access to funds and use funds only when needed.
Cost-effective – Interest applies only to the amount you borrow.
Cash flow support – Helpful for seasonal businesses or waiting on invoices.
Can build credit – With on-time repayment, it may improve your credit profile.

When should I consider a business line of credit?

The top reason to open a business line of credit is in order to secure short-term, flexible funding. It may be a a good fit if:

Your business has seasonal ups and downs.
You need to cover short-term expenses, like payroll or inventory.
You don’t want a large lump-sum loan.

If you need long-term financing (like for equipment or real estate), a traditional term loan may be better.

Final Thoughts

A business line of credit can be a powerful tool for small businesses that need flexibility and fast access to cash. Just be sure to use it wisely and understand the costs.

Ready to explore your options? Start with Mona’s common app and see which lenders may be the best fit for your business.

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Understanding business lines of credit