Business Line of Credit 101 (Part 2)

Business Line of Credit

What is a business line of credit, and how does it work? Should you get one for your company, or are you better off without one? We’ll outline how business lines of credit work, in today’s article.

First, you need to understand what a business line of credit is. These are not loans in the sense that you are not given any funds upon approval. Instead, you will have an amount of money available to you that you have been approved for.

So, if you are approved for $50,000, you can borrow money from this credit line at any time (called a draw). At that moment, the interest rate will apply to the currently owed balance. In this way, it functions somewhat like a cash advance on a credit card.

So, should your company get a business line of credit? This depends on your needs. For many companies that do business-to-business transactions with net 30 invoices, they find it comes in handy having a business line of credit to stabilize their monthly income.

The thinking is that if you borrow to pay your current expenses, pending income invoices, you can repay the amount you draw while keeping your petty cash and emergency funds healthy. The alternative to this would be to factor your invoices (sell them to a third party for a fee). However, that is typically the more expensive option.

Whether or not you decide to get a business line of credit, you should at least explore the possibility to see if it’s something that would work for your company.

For more information, go to Business Line of Credit at

Business Line of Credit 101 (Part 2) was last modified: December 8th, 2011 by Amit Kraidman
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