Find the Lowest Rates on Business Lines of Credit

A business line of credit gives access to a pool of funds to draw from when you need capital. Unlike a traditional business loan, you have the flexibility to borrow up to a set amount (typically anywhere from $50,000 to $500,000), repaying only the amount you withdraw, with interest. Draw on your small business line of credit to handle cash flow gaps, get more working capital, or address almost any other emergency or opportunity.

A small business line of credit is pretty similar to a personal line of credit (like your credit card).

A bank or lender gives you access to a specific amount of financing set by a credit limit, which you can draw from whenever you want or need.

However, you don’t make payments or incur any interest until you actually tap into those funds. You pay for what you use, in other words, and there are no fees for repaying early.

Business lines of credit can come secured—backed by collateral like inventory, accounts receivable, and so on—or unsecured, backed only by your personal guarantee.

This sort of financing often gets referred to as revolving credit because you can tap into it again and again. Once you repay what you’ve spent, you can continue to draw capital from your line of credit.

For instance, say you’re given access to a $60,000 small business line of credit. You decide to take out $40,000, keeping the other $20,000 in the pool of available funds.

Once you pay that $40,000 back (plus interest), you’ll have the whole $60,000 at your fingertips again—without having to apply for another loan. Therefore, revolving small business lines of credit don’t really have term lengths—you can withdraw and pay back those funds indefinitely, as long as your lender believes that you’re a responsible borrower.

The time and energy you save is one of the biggest benefits to a business line of credit.

Although most business lines of credit are traditional revolving credit products, some will not automatically renew after you’ve fully repaid what you owe. Some non-revolving lenders will have you reapply to renew your line of credit. Assuming you’ve remained in good graces with your lender, reapplying should be an easy process.

Note that you’ll sometimes hear lines of credit differentiated as short-term lines of credit and medium-term lines of credit. The differences are mostly in their minimum qualifications, maximum fund amounts, and interest rates.

The longest-term lines of credit typically come from a traditional bank. Medium-term lines of credit and short-term lines of credit are typically found with online lenders.

So what sets a business line of credit apart from a traditional term loan?

To start with, business lines of credit usually come with lower interest rates and closing costs than traditional term loans of similar sizes.

But on the other hand, if you’re late with a payment or go over your credit limit, that interest rate could spike pretty high.

Also, traditional term loans have regular interest rates over the life of the loan, which is a major difference between term loans and business lines of credit.

If you’re comparing a small business line of credit with a traditional term loan, keep in mind that lines of credit tend to work better for repeated cash flow issues while term loans often make more sense when it comes to specific purchases or one-off business investments. But that doesn’t mean you can’t or shouldn’t use a business line of credit for business purchases, too.

Although business lines of credit and business credit cards are both forms of “revolving” credit, there are a few important differences you should be aware of:

• Credit cards usually have higher interest rates.
• Credit cards charge additional fees for cash advances and, often, balance transfers.
• Credit cards typically require payments on a monthly basis while business lines of credit usually don’t.
• Lines of credit give you access to cash.

What sorts of businesses are eligible for this flexible financing?

Younger, less established businesses might be able to qualify for short-term lines of credit, while medium-term lines of credit are more for businesses with good credit and a solid financial history.

The maximum amount of funding available, introductory duration of the credit line, and repayment terms depend on your business’s revenues, credit rating, history, and other factors.