How Business Lines of Credit Work

Business lines of credit are a type of financing that gives you access to working capital 24/7. You can use them for virtually any business need, from small, one-time purchases to ongoing payments. To help you get started with this essential tool for commercial growth, we’ve prepared a helpful guide. Here’s everything you need to know about business credit, including how to get started.

How Do Business Lines of Credit Work?

The first step in getting business credit is to apply with a lender. Once the bank approves you, your business receives a line of credit for a specific amount. If you’re approved for $20,000, that is the maximum amount that you can spend.

You can borrow from your account as many times as you want, up to the limit established. That means you can use your credit to purchase a piece of equipment worth $20,000 or many items with a smaller price tag. You can always take out as much or as little as you want.

Business credit works on a revolving basis. In other words, as you pay back what you owe, you have access to the money again. For example, some businesses purchase inventory using this credit. After they get paid from their customers, they can pay off the debt. The next time they want to buy inventory, all of the money is right there waiting.

What Are the Advantages of Business Lines of Credit?

After you see all the benefits a business line of credit offers owners, you’ll understand why so many businesses take advantage of this incredible tool:

  • Always available: Once you’re approved for business credit, you can use it anytime, anywhere. If you have a business emergency, your line of credit can handle things until your customers pay you. This provides a kind of safety net for your company.
  • Accessible: You don’t have to pay interest until you withdraw money from the account. Also, the APR for lines of credit is usually more comfortable than a credit card, so you can invest freely in growth.
  • Credit-friendly: One of the best perks of this financing option is that it doesn’t impact your credit score negatively. You can have an unsecured business line of credit and still apply for SBA financing or a mortgage without problems. In fact, by using and paying back your credit balance, you can actually improve your business’s credit history.

There are virtually no downsides to business lines of credit as long as you administer your capital wisely. You never have to explain to the bank what you want to use the money for. Pay taxes, buy inventory, upgrade computer systems or invest in digital marketing. This can be an amazing tool for small businesses looking to grow.