A business line of credit is one of the most flexible financing tools a small business can have. Instead of a single lump sum, you get a credit limit you can draw from whenever you need to, repay, and then draw from again — much like a credit card, but usually with lower costs and higher limits.
How a line of credit works
You’re approved for a maximum amount — your credit limit. From there:
- You draw funds when you need them, up to the limit.
- You typically pay interest only on what you’ve drawn, not the full limit.
- As you repay, that credit becomes available to use again. This is what “revolving” means.
That cycle makes a line of credit ideal for needs that come and go.
What it’s good for
- Smoothing uneven cash flow — covering payroll or rent in a slow month, then repaying in a strong one.
- Short-term, recurring needs — buying inventory ahead of a busy season.
- A safety net — having access in place before an emergency, so you’re not scrambling.
Set it up before you need it
The best time to open a line of credit is when your business is healthy — not in the middle of a cash crunch. Approval is usually easier when your numbers look strong.
What it’s not for
A line of credit is generally not the right tool for a large, one-time purchase you’ll repay over years — like buying a building or a major piece of equipment. For those, a term loan or equipment financing usually fits better, because the repayment is structured for a long-lived asset.
Secured vs. unsecured
Some lines are secured (backed by collateral such as receivables or inventory) and some are unsecured. Secured lines may offer higher limits or better pricing; unsecured lines are simpler but may cost more or have lower limits. Which you qualify for depends on your business’s profile and the lender.
How to get one
You can apply directly with a bank, credit union, or online lender, or compare several at once through a marketplace.
| Provider | Type | Often suits | Visit |
|---|---|---|---|
| Bluevine Online business line of credit and banking for established small businesses. | Direct lender | Revolving lines of credit | Visit Bluevine (opens in a new tab) |
| Lendio A free marketplace that matches your application to 75+ small-business lenders with one form. | Marketplace | Comparing many lenders at once | Visit Lendio (opens in a new tab) |
Before you apply, have your recent business financials and bank statements ready. Lenders generally want to see steady revenue and some operating history. As always, confirm the current rate, fees, and draw terms directly with the provider — we don’t publish numbers that go stale.
Frequently asked questions
- What's the difference between a line of credit and a term loan?
- A term loan gives you a lump sum you repay on a fixed schedule — good for a one-time purchase. A line of credit is a reusable limit you draw on as needed and only pay interest on what you use — good for recurring or unpredictable short-term needs.
- Do I pay interest on the whole credit limit?
- Typically no — you generally pay interest only on the amount you've actually drawn, not your full limit. Terms vary by lender, so confirm before you sign.
Sources
Loan programs, rates, and eligibility change. We re-check sources on the “updated” date, but always confirm current terms directly with a provider.