A line of credit is a flexible loan that lets you borrow up to a set limit, repay, and borrow again. You only pay interest on what you use. It's ideal for managing cash flow timing gaps, seasonal fluctuations, and unexpected expenses. Best established during good times for use when needed.
Key Moves
- Borrow up to your credit limit, repay, and borrow again — like a credit card
- Only pay interest on the amount borrowed, not the full limit
- Ideal for timing gaps: payroll due before customer payments arrive
- Establish during strong financial periods for use during slow periods
- Secured lines use collateral (inventory, receivables). Unsecured lines rely on creditworthiness.
See invoice factoring and working capital for more on this.
Frequently Asked Questions
What's the difference between a line of credit and a term loan?
A line of credit is revolving — borrow, repay, borrow again. A term loan is a lump sum with fixed payments. Lines are better for timing gaps; term loans for major purchases.
How do I qualify for a business line of credit?
Lenders look at credit score, revenue history, time in business, and profitability. Most require 1–2 years of operating history.
What interest rate should I expect?
8–15% for secured lines. 15–25% for unsecured. SBA-backed lines may be lower.