Business Line of Credit

A business line of credit is a flexible loan that gives your business access to a set amount of money—up to a limit—that you can draw from as needed. You only pay interest on the funds you actually use, and once you repay what you’ve borrowed, your credit line resets and is available again.

Key Features:

• Revolving credit – Like a credit card, but for business use.
• Flexible access – Withdraw funds when cash flow is tight, repay, and reuse.
• Interest only on what you use – No interest charged on unused funds.
• Typically short-term – Designed to cover working capital needs (e.g., inventory, payroll, unexpected expenses).

Common Uses:

• Managing seasonal cash flow gaps
• Buying inventory in bulk
• Covering operational expenses during slow periods
• Handling emergency repairs or opportunities

Types:

• Secured line of credit – Backed by collateral (e.g., inventory, receivables, or real estate).
• Unsecured line of credit – No collateral required, but usually has stricter credit requirements and higher interest rates.

Who Offers Them:

• Banks and credit unions
• Online lenders (often faster approval, but higher rates)
• BusinessMoney.broker

Example:

Your business gets approved for a $50,000 line of credit. You draw $10,000 to cover payroll, then repay it over 3 months. After repayment, the full $50,000 is available again.

Advantages of applying for a business line of credit (revolving credit line)

1. On-demand liquidity
   • Draw only what you need, when you need it—no interest accrues on the unused portion.
   • Replenishes automatically as you repay, so the same credit limit can be reused indefinitely (unlike a term loan).
2. Interest-only or low amortization payments
   • Most lines let you pay interest-only each month on the outstanding balance, preserving cash flow.
   • Optional principal reductions without penalties mean you control the repayment schedule.
3. Lower effective cost than most alternatives
   • Revolving lines typically price at Prime + 0–6 % for bank products and 8–18 % APR for online lenders—cheaper than credit-card APRs or merchant cash advances.
   • No origination fees on many bank lines; fintech lenders may charge 1–3 % draw fees, still lower than MCA factor rates.
4. Builds business credit and banking relationship
   • Bank-issued lines report to D&B, Experian Business, Equifax SB, strengthening your PAYDEX and SBSS scores.
   • A maintained line demonstrates creditworthiness to the same bank for future term loans, SBA loans, or commercial real-estate financing.
5. Flexible use cases
   • Bridge gaps between receivables and payables, finance inventory builds, cover seasonal dips, fund marketing campaigns, or take advantage of supplier discounts.
   • Can serve as an emergency cushion—no scrambling for new financing when an unexpected cost arises.
6. Faster access than term loans or SBA products
   • Fintech and credit-union lines can be approved and funded in 1–3 business days; traditional banks often 5–10 days versus weeks for SBA 7(a) or equipment loans.
7. Unsecured options available
   • Many lenders offer unsecured lines up to $100 k–$250 k based purely on cash-flow underwriting, sparing personal or business assets from liens.
   • Larger lines ($250 k+) may require a UCC-1 blanket lien but still no specific collateral pledge.
8. Transparent pricing and covenants
   • Bank lines have simple interest calculations with minimal fine print.
   • Online lenders increasingly publish factor rates or daily/weekly ACH draws clearly, making cost comparisons straightforward.
9. Scalable limits
   • Start with $10 k–$25 k and grow to $500 k+ as revenues and financials improve; lenders often review for automatic increases every 6–12 months.
10. Supports personal credit protection
    • When the line is issued to the business entity and paid responsibly, it keeps debt off the owner’s personal credit report, preserving personal borrowing capacity.

In short, a business line of credit delivers flexible, low-cost, reusable funding that grows with the company while simultaneously strengthening its credit profile and banking relationships.

A business line of credit improves cash-flow in several definitive ways:

1. Smooths timing mismatches
   • You can draw on the line the same day an invoice is issued (or payroll is due) and repay it the moment the customer pays, eliminating cash “gaps” without ever missing a payment.
2. Turns receivables into same-day cash
   • Instead of waiting 30–90 days for customers to pay, you advance yourself the money immediately. This keeps operating cash-flow positive even when sales are on credit terms.
3. Covers seasonal dips without revenue disruption
   • Retailers, landscapers, tourism companies, etc. can draw in low-revenue months and repay in high-revenue months, maintaining steady supplier payments and payroll without laying off staff.
4. Preserves internal cash for growth or emergencies
   • By financing inventory purchases, bulk-order discounts, or marketing campaigns with the line, you keep the cash you already have available for unexpected expenses or strategic investments, ensuring day-to-day operations never strain working capital.

How a BusinessMoney.broker derived Line of Credit let “Coastal Crate Co.” expand significantly in one season (names, details modified for privacy purposes)

1. Instant Pre-Qualification
   • Owner ran a Business Credit Success Scan™ and qualified for Business Line of Credit.
   • Platform returned two revolving lines; she accepted a $250 k unsecured LOC at Prime + 3.5 %, interest-only on draws.
2. First Draw → Production Ramp-Up
   • $120 k drawn immediately to triple raw-material orders (pine crates & galvanized hardware).
   • Cost per unit fell 18 % thanks to bulk pricing—profit margin jumped from 24 % to 34 %.
3. Second Draw → Marketing Blitz
   • $80 k drawn two weeks later for targeted Facebook/Instagram/Google ads and influencer kits.
   • Sales velocity doubled; monthly revenue leapt from $45 k to $110 k within 90 days.
4. Third Draw → New Facility
   • $50 k drawn as security deposit and first-month rent on a 4,000 sq ft warehouse, doubling storage and adding a small showroom.
   • Same-day digital closing meant no lost momentum.
5. Pay-Down & Credit Boost
   • Peak-season cash flow allowed full balance repayment in month six; interest cost totaled only $6,800 on the $250 k peak.
   • Clean utilization history triggered an automatic credit-limit increase to $400 k, setting the stage for an SBA 504 real-estate purchase next year.

Result: Coastal Crate scaled revenue 3×, margin +10 pts, and square footage 2×—all powered by one flexible business line of credit through BusinessMoney.broker