A business line of credit is a revolving facility — closer to a credit card than to a term loan. You're approved up to a maximum (say, $100,000), but you only pay interest on what you actually draw, and your available balance refills as you repay.
When it's the right tool
Lines of credit shine for uneven, recurring cash needs: payroll during a slow month, inventory ahead of a peak season, a vendor opportunity you didn't plan for. You draw what you need, repay quickly, and have the facility ready for the next use.
They're a poor fit for a single large purchase — for that, a term loan amortized over the asset's useful life is almost always cheaper.
How approvals work
Most lenders care about three things, in this order:
- Cash flow — can you service the draws?
- Time in business — longer is better; most products want 12+ months.
- Personal credit — for smaller lines, your FICO score matters more than your business credit.
A 680+ FICO and 12 months of clean business banking will unlock most of the market.
What to watch for
- Draw fees — some lenders charge each time you tap the line. Read the fine print.
- Annual or maintenance fees — common, usually waivable if you use the line consistently.
- Renewal terms — most lines need to be renewed annually. A line you can't renew is a liability.
Treated well, a line of credit is the most flexible product in small business lending. Treated like free money, it's an expensive mistake.