Unlike a business loan, where you receive a lump-sum disbursement upon account opening, small business lines of credit provide as-needed access to financing through a revolving line, similar to a credit card. Monthly payments are made on what you borrow. 

How does a business line of credit work?

A small business line of credit is similar to a credit card, but interest rates are usually lower and the funds must be used for business purposes. Like a credit card, you can borrow up to your approved credit limit and are only charged interest on what you borrow. There is a minimum repayment each month.

Once you repay the borrowed funds, you can continue to draw on the line up to your approved credit limit. A small business line of credit is subject to annual credit review.

What can a business line of credit be used for?

Once you open your line of credit, you can use the money for almost any business expense. Most business lines of credit are used for short-term needs such as buying inventory, managing cash flow, or covering payroll. There is a minimum repayment plus interest every month, just as a credit card company would charge.

What’s the difference between secured and unsecured lines of credit?


A secured line of credit uses an asset you already have, like company real estate, as collateral to secure the loan. If you default on payments, the lender has the right to seize that piece of collateral to offset their losses. In general, a secured line of credit puts the lender at less risk, but can result in higher approval rates or more favorable terms for you, such as lower interest rates.

With an unsecured line of credit, the lender takes more risk. If you default, there is no collateral to recoup the losses. Since this puts the lender at greater risk, an unsecured line of credit may be more challenging to obtain and carry higher interest rates.