You’ve just secured the biggest order of the year—great news for your business. But there’s a catch. Payment won’t arrive for 60 days, and in the meantime, payroll is due, shelves need restocking, and expenses keep rolling in. When expenses can’t wait but revenue lags behind, flexible financing becomes essential to keep business operations stable and uninterrupted.
A small business line of credit is a lifeline, giving you instant access to funds when needed. Instead of scrambling to cover shortfalls or delaying growth opportunities, you may better manage cash flow – borrow what you need and pay back as your invoices come in. This flexibility may help you get through slow seasons and unexpected expenses and keep momentum without taking on long-term debt that will hold you back in the future.
Unlike a traditional loan, a business line of credit generally gives you revolving access to capital – you may borrow, payback, and borrow again. This flexibility makes it a valuable tool for operational expenses or growth opportunities. Whether you’re in slow seasons or unexpected expenses, having funds at your fingertips may help stabilize your business. In this guide, we’ll go through the types of business lines of credit, tips on how to qualify, and what to look for to find the right one for you.
What is a business line of credit?
A business line of credit (LOC) allows business owners to borrow funds up to a set limit. Unlike traditional term loans, which provide a lump sum upfront, a line of credit generally offers revolving access to capital. This means you may borrow, repay, and borrow again as needed. You decide when to tap into the credit, paying interest solely on what you borrow—keeping costs down while ensuring funds are available when needed.
A line of credit may provide between $25,000 and $100,000 to help manage operational costs, cover unexpected expenses, or fund growth opportunities. Monthly payments are typically based on the balance used, and interest accrues only on the withdrawn amount.
Types of business lines of credit
Business lines of credit come in two forms: secured and unsecured. Both offer flexible access to capital but different requirements, risk, and loan limits. Choosing between the two depends on your business’s financial health, credit history, and willingness to put up collateral.
One of the biggest benefits of a business line of credit is its flexibility. Unlike term loans, which give you a lump sum upfront, a line of credit allows you to draw funds as needed – pay interest only on what you use. This revolving structure helps you manage cash flow gaps, cover short-term expenses, or finance ongoing projects. It’s typically great for navigating unexpected costs or seasonal changes without committing to long-term repayment plans.
Unsecured lines of credit may be easier to get but often have higher interest rates. Secured lines of credit may have better terms since you put up business assets as collateral. Knowing the differences will help you choose the option that fits your cash flow needs and long-term goals.
Compared to other financing options, a line of credit gives you more control—giving you continuous access to capital so you can manage day-to-day operations and capitalize on opportunities as they arise. For many small businesses, this balance of flexibility and control is the difference between keeping momentum and falling behind.
Unsecured line of credit
An unsecured line of credit does not require collateral. Lenders evaluate factors like creditworthiness and business performance to determine eligibility. These lines may be easier to obtain for businesses with strong financials, but they often have higher interest rates due to their lack of collateral requirements.
Secured line of credit
A secured line of credit requires collateral—such as inventory, equipment, or accounts receivable—to back the loan. This lowers the risk for lenders and may lead to larger credit limits or lower interest rates. A secured line of credit might be an option for businesses looking for better terms or those that need to borrow higher amounts.
How to qualify for a business line of credit
Qualifying for a business line of credit usually depends on creditworthiness, business performance, and financial documents. Lenders look for signs that your business can manage debt responsibly and generate enough revenue to repay the borrowed amount. While requirements may vary by lender, the general qualifications are: good credit score, consistent revenue, solid operational history, and complete financial records. Businesses with stronger profiles typically get better rates and higher credit limits, while newer or lower-revenue businesses often get stricter terms.
Understanding the business line of credit requirements in advance may improve your chances of approval and ensure you’re prepared during the application process. By strengthening key areas—such as your credit score and revenue—you may position your business to access the funding it needs.
Business credit score
Your SBSS score (Small Business Scoring Service) or other credit ratings play a key role in qualifying for a line of credit. Most lenders require a minimum score, generally around 600-650, but higher scores may unlock more favorable terms. A strong credit profile signals to lenders that your business can handle debt responsibly.
Business revenue
Lenders assess your revenue to ensure you can repay the funds you borrow. Many lenders look for annual revenues of at least $100,000, but higher revenue may improve your chances of qualifying for larger credit lines. Demonstrating steady growth or strong sales trends may also help establish your eligibility.
Years in business
Generally, businesses with a longer track record tend to have an easier time qualifying. Lenders typically require at least two years in business, as this shows stability and experience in managing finances. Newer businesses may still qualify but may face stricter terms or need to provide additional documentation.
Financial documentation
Detailed financial records help lenders evaluate your business’s health. Expect to provide six months of bank statements, tax returns, profit and loss statements, and a balance sheet. Accurate and up-to-date documents demonstrate transparency and may speed up the approval process.
Alternative funding options
A small business line of credit may provide immediate access to funds, but it may not always be the right fit for long-term financing needs. Lines of credit are often used to handle short-term expenses or manage small business cash flow during slower periods. For larger or more extended funding, term loans or Small Business Administration (SBA) loans may be a better option.
Understanding how different types of financing work—and how they impact cash flow—may help you choose the right solution for your business’s needs.
Is a business line of credit right for you?
A business line of credit may be helpful if your business experiences fluctuating cash flow, seasonal dips, or unexpected expenses. It offers flexibility and may be a valuable resource for managing day-to-day operational costs. However, it's important to carefully consider the terms and interest rates, ensuring the financing aligns with your long-term goals.
Business owners who prioritize adaptability and cash flow management may find that a small business line of credit complements other financial tools. Evaluate your current financial situation and growth plans to determine if this option supports your business objectives.
