Lines of Credit

Like a small business loan, an unsecured line of credit provides a business with access to money that can be used to address any business expense that arises. Unlike a small business loan, however, there’s no lump-sum disbursement made at account opening that requires a subsequent monthly payment.

What is a commercial Line of Credit

Every  business needs to be flexible, especially in times of expansion or decline. When a business needs access to cash and flexible terms for repaying debt, an unsecured line of credit can be a perfect solution.

A commercial line of credit has more in common with a commercial credit card than with a commercial loan.

Like a commercial loan, an unsecured line of credit provides a business with access to money that can be used to address any commercial expense that appears. Unlike a commercial loan, however, there’s no lump-sum payment made at account opening that requires a subsequent monthly payment.

A commercial line of credit is subject to credit review and annual renewal, and is revolving, like a credit card: Interest begins to accumulate once you draw funds, and the amount you pay (except for interest) is again available to be borrowed as you pay down your balance. As with a credit card, the lender will set a limit on the amount you may borrow.

Using a commercial line of credit

The number-one reason to open a commercial line of credit is to acquire short-term funding. Most businesses use these funds to support financing for operational expenses like supplies and payroll or for increasing inventory. Cyclical businesses often rely on an unsecured line of credit as a source of off-season working capital.

Unlike many commercial loans, a commercial line of credit is not designated for a specific purpose or purchase — it’s a good choice for small businesses looking for ways to better manage cash flow. Funds are typically drawn from the line of credit by using a business checking account, a business credit card.

Understanding secured and unsecured lines of credit

A commercial line of credit is typically offered as unsecured debt, which means you don’t need to put up collateral. Most unsecured lines of credit come with a variable interest rate and are available for dollar amounts ranging from $10,000 to $100,000.

Advantages of commercial line of credit

  • Builds credit rating
  • Keep positive cash flows
  • Assist growth of business
  • Gives flexibility of financing for the business
  • Proves a business can pay debt