Lines of Credit

A business line of credit offers more flexibility for the borrower than taking out a lump sum upfront. With a line of credit, the lender provides a credit balance, and the borrower takes as much or as little from the balance as necessary. Once the full balance has been withdrawn, the account closes.
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Lines of Credit Pros and Cons

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Credit lines offer more flexibility than borrowing a lump sum of cash
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Unsecured lines are ideal in some situations because they don’t require collateral
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Secured credit lines can come with higher credit limits
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Interest rates are higher with a credit line than a traditional loan
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It’s harder to qualify for an unsecured line of credit
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Collateral will be tied to a credit line until the balance is paid in full

Loan Highlights

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Credit lines can be secured or unsecured
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It can be difficult for new businesses and those with poor credit to qualify
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Working capital credit lines are similar to opening a merchant credit card
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Borrowers can withdraw as much or as little money as necessary, and pay back only what was taken
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As funds are taken from the credit line, the balance is depleted

Lean More About Lines of Credit

One of the challenges that come with taking out a commercial loan is knowing how much to borrow. For many businesses, there’s a fine line between borrowing too much and too little. If too much is borrowed, the business may have trouble making payments. If too little, they’ll be left with a loan payment and still have to come up with more funding.

In many cases, a line of credit is a better solution. Rather than receiving a lump sum of cash, a lender offers a credit limit. If the borrower doesn’t withdraw any money from the line of credit, it doesn’t owe anything back. The business can take out as much or as little as necessary at a time and repay just what it withdraws.

There are two types of credit lines: secured and unsecured. Companies with excellent credit scores and sales history can qualify for unsecured credit, which doesn’t require any collateral. However, the downside is that lenders mitigate their risk by approving lower credit limits.

There are also working capital credit lines, which are similar to credit cards. As the borrower withdraws and repays funds, the balance gets restored to be borrowed again and again.

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