A business line of credit gives you access to a set amount of capital that you can draw from as needed, rather than receiving a lump sum upfront. You only pay on what you actually use, and as you repay, that capital becomes available again — which is why it's often described as "revolving."
How it's different from a loan
A term loan gives you a fixed amount all at once, with a fixed repayment schedule starting immediately, whether or not you've used the full amount yet. A line of credit sits available until you need it, and the repayment clock only starts on what you draw.
Common uses
- Smoothing cash flow between invoices or seasonal cycles
- Covering payroll during a slow stretch
- Jumping on an unexpected inventory deal or opportunity
- Handling unplanned repairs or expenses without disrupting working capital
What to think through before opening one
How often will you actually use it?
A line of credit is most valuable for recurring or unpredictable needs — not a single, defined purchase, where a term loan or equipment financing might be more cost-effective.
What's the draw and repayment structure?
Terms vary — understand how interest accrues on what you draw, and how repayment affects what becomes available again.
Is it there for flexibility or for a plan?
A line of credit works best as a cash-flow tool you dip into as needed, not as your only source of capital for a large, planned expense.
For businesses with revenue that fluctuates — seasonal retailers, project-based service businesses, anyone managing the gap between delivering work and getting paid for it — a line of credit is often less about solving one problem and more about having a cushion ready for whichever problem shows up first.
