Of all the business funding products available, the business line of credit might be the most valuable — and the most underused. Unlike a term loan, you don't pay for money you're not using. Unlike a credit card, the limits are much higher. Here's everything you need to know.
How a Business Line of Credit Works
A line of credit gives you access to a pool of funds up to a maximum amount. You draw from it when you need it, repay it, and draw again. It revolves — meaning as you pay it down, that capacity becomes available again.
Example: You have a $75,000 line of credit. You draw $30,000 to cover a payroll gap. The next week, revenue comes in and you repay $15,000. Now you have $60,000 available again. You draw $10,000 for an inventory purchase. And so on.
You only pay interest on the outstanding balance — not the full credit limit. This makes it dramatically more cost-effective than taking a lump-sum loan for the same purposes.
Types of Business Lines of Credit
Secured line of credit: Backed by collateral (accounts receivable, inventory, equipment). Lower rates, higher limits. Common for established businesses with assets.
Unsecured line of credit: No collateral required. Higher rates, lower limits. More accessible for newer businesses or those without significant assets.
Revolving: The most common type. Replenishes as you repay. Great for ongoing needs.
Non-revolving: Once drawn and repaid, it closes. More like a loan with flexible draw periods.
What You Need to Qualify
Requirements vary by lender and product tier:
- Time in business: 6 months minimum for alternative lenders; 2+ years for bank products
- Monthly revenue: $10,000–$15,000+ per month
- Credit score: 580+ for most alternative lenders; 680+ for bank lines
- Bank statements: 3–6 months showing consistent deposits
Line of Credit vs. Business Credit Card
Many business owners use credit cards when a line of credit would serve them much better:
| Line of Credit | Business Credit Card | |
|---|---|---|
| Typical limit | $10K – $500K | $5K – $50K |
| Interest rate | 8% – 35% APR | 18% – 29% APR |
| Cash access | Direct to bank account | Cash advance (high fees) |
| Best use | Large cash needs | Everyday purchases |
For anything requiring cash — payroll, rent, supplier payments — a line of credit beats a credit card almost every time.
The Best Use Cases
- Covering payroll between billing cycles
- Purchasing inventory ahead of peak season
- Bridging gaps when large customers pay late
- Handling unexpected repairs or expenses
- Taking advantage of supplier discounts for early payment
How to Get the Most Out of Your Line
A line of credit builds credit. Drawing and repaying regularly — even small amounts — demonstrates financial responsibility and can help you qualify for higher limits over time. Treat it like a tool, not a lifeline. Use it for specific, planned purposes rather than general cash flow emergencies.
The Bottom Line
A business line of credit is one of the most valuable financial tools a small business owner can have. Getting one established before you desperately need it is even smarter. HeyFunder offers lines of credit up to $250,000. Apply in 5 minutes to see what you qualify for.
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