How a Business Credit Line Works

A business credit line provides easy access to funds. It works as credit card in the sense that you have a limit on how much money you can borrow but you only pay interest on the amount you are using.

This type of financing provides quick access to cash (once it’s set up) that can be paid over time. It also provides the flexibility necessary to borrow only as much money as you need at any given time.

It also works like a checking account in the sense that in order to get money, you just need to write a check. Of course, you can not write a check larger than the credit line limit.

There are two types of commercial credit lines and the requisites for both vary.

First, you can get a secured credit line. With a secured credit line, you can borrow more money and at lower rates. However, you have to show more paperwork. Usually, a lender will seek for collateral and proof that you generate enough income to pay off the credit line.

Second, you can get an unsecured credit line. With this type of line of credit, you don’t need collateral but you won’t be able to borrow as much money and the interest rate may be slightly higher. When you apply for an unsecured credit line, the lender uses your credit score and/or your business’ credit score to determine whether you will get the credit you are requesting.

By using a business credit line, a business owner can regulate cash flow by using only what is needed. By borrowing only what you need when you need it, you reduce interest expenses.

Credit lines may be a good choice if you are looking to expand your business, improve cash flow or increase inventory. It can also be kept as a “reserve” for unexpected business expenses.

Of course, if you are thinking on getting a commercial line of credit or any other type of financing, talk to your business loan broker. He can help you find the best solution for your financial needs by evaluating your business circumstances.