What is a business line of credit?

A business line of credit is a revolving account that allows access to a fixed amount of capital, which can be used when needed to meet short-term business needs. A business line of credit is the best financing option when you need extra working capital to cover recurring business expenses or bridge cash flow gaps. With ongoing access to funds, you have the flexibility to withdraw only what you need, when you need it—and pay for only what you use. So, you’ll be prepared for whatever challenges and opportunities come your way.

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Secured vs. Unsecured Line of Credit

A secured business line of credit requires a business to pledge assets as collateral to secure the line. Since a line of credit is a short-term liability, lenders typically ask for short-term assets, such as accounts receivable or inventory. If the borrower is unable to repay the line, the lender may proceed to assume possession of the collateral and sell the asset in order to pay off the balance.

 

An unsecured business line of credit does not require a business to pledge assets as collateral to secure the line. Unsecured lines of credit typically require the business owner to have a strong credit profile and credit score, along with a positive business track record to qualify. 

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Is a line of credit useful for my company?

Unlike a term loan, a business line of credit allows you to run your business without having to apply for a new loan every time you need a bit of extra cash. And with ongoing access to working capital, you can plan for and better manage your business’s future cash flow with less stress. Your line of credit can give you the boost you need to take advantage of opportunities when they arise.

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One of the main benefits to having a business a line of credit is that it’s revolving. That means you can access the credit line when you need it, pay down the balance, and use the line again as funds replenish.