A business line of credit is flexible funding that gives you easy access to cash when you need it most. Unlike a term loan, it does not specify the exact amount of financing or term on the financing. Rather, it gives you the flexibility to use as much or as little financing as you need (up to your credit line) for as long or as little as you need. Thus, if you only need to close a 1 week gap in cash flow, to cover payroll or purchase supplies, for instance, you only pay for the one week of financing you use.
A business line of credit is similar to a personal lines of credit (such as a credit card or home equity line of credit) in that you have access to a certain amount of financing (e.g. $30,000) but you don’t make payments or incur any interest until you access the funds. Business Lines of credit can be either unsecured or secured (typically by inventory or receivables) and are often referred to as “revolving,”. This means you can tap into them over and over again, as needed. For instance, if you have a $30,000 line of credit and take out $5,000, you still have access to the remaining $25,000. If you pay that $5,000 back down to $0, you still have access to the entire $30,000 without having to reapply.