Flexible Capital Access When You Need It
Running a business means dealing with unpredictable expenses and opportunities. A business line of credit gives you ready access to capital without taking on unnecessary debt. Draw what you need, when you need it, and only pay interest on what you use.
How a Business Line of Credit Works
Think of a business line of credit like a credit card for your business, but typically with lower rates and higher limits.
Here’s the basic mechanics:
- Establish a credit limit based on your business qualifications
- Draw funds when you need capital (up to your limit)
- Pay interest only on the amount you’ve borrowed
- Repay according to your agreed terms
- Replenish - as you repay, that credit becomes available again
This revolving structure means you always have capital available for whatever your business needs.
Example in Action
Your credit limit: $75,000
- Month 1: Draw $20,000 for inventory. Available credit: $55,000
- Month 2: Repay $8,000. Available credit: $63,000
- Month 3: Draw $15,000 for equipment repair. Available credit: $48,000
- Month 4: Business is good - repay $25,000. Available credit: $73,000
You only pay interest on your outstanding balance, not the full credit limit.
Line of Credit vs. Term Loan
| Feature | Line of Credit | Term Loan |
|---|---|---|
| Access | Ongoing, revolving | One-time lump sum |
| Interest | On amount used | On full amount |
| Repayment | Draw and repay as needed | Fixed schedule |
| Best for | Ongoing/variable needs | Specific purchase |
| Flexibility | High | Lower |
When a Line of Credit Makes Sense
A business line of credit is ideal for:
Managing Cash Flow Gaps
Many businesses experience timing mismatches between when expenses occur and when revenue arrives. A credit line bridges these gaps without expensive short-term borrowing.
Seasonal Inventory Purchases
Retail businesses often need to stock up before busy seasons. Draw from your credit line to purchase inventory, then repay as sales come in.
Handling Emergencies
When equipment breaks or unexpected expenses arise, having available credit means you can address issues immediately without scrambling for financing.
Taking Advantage of Opportunities
Supplier offering a discount for bulk purchase? New equipment available at a great price? A credit line lets you move fast.
Smoothing Payroll
When client payments are delayed, your team still needs to be paid. A credit line ensures you never miss payroll.
Types of Business Lines of Credit
Secured Lines of Credit
Backed by collateral (usually business assets or receivables). Benefits:
- Higher credit limits
- Lower interest rates
- Easier approval
Unsecured Lines of Credit
No collateral required. Benefits:
- Faster approval process
- No assets at risk
- Good for businesses without significant assets
Asset-Based Lines
Credit limit tied to specific assets like accounts receivable or inventory. The limit fluctuates with your asset values.
Qualification Requirements
Business line of credit requirements vary by lender and line type:
Typical Requirements:
- Time in business: 1-2+ years
- Annual revenue: $100,000+ (varies widely)
- Credit score: 600+ (higher scores get better terms)
- Business bank account in good standing
- No recent bankruptcies or tax liens
For larger credit lines ($250,000+):
- Stronger credit profile (680+)
- More detailed financial statements
- Potentially collateral requirements
- Personal guarantee likely required
Interest and Fees
Business lines of credit typically include:
- Interest rate: 7-25% APR depending on qualifications
- Draw fees: Some lenders charge per-draw fees
- Annual fee: May apply, especially for larger limits
- Maintenance fee: Some lenders charge monthly fees
We help you find credit lines with competitive rates and minimal fees.
Building Business Credit
Responsible use of a business line of credit can help build your business credit profile. For actionable strategies, see our guide on how to improve your business credit score.
- Make payments on time
- Keep utilization reasonable (under 30% of limit)
- Maintain the account long-term
- Report to business credit bureaus
A strong business credit profile opens doors to better financing options in the future.
Is a Line of Credit Right for Your Business?
A business line of credit works best when:
- Your capital needs vary month to month
- You want flexibility rather than a lump sum
- You have good credit and stable revenue
- You need a safety net for cash flow gaps
- You want to build business credit
For one-time large purchases or specific projects, a term loan or equipment financing may be more appropriate.
Get Started Today
Ready to establish a business line of credit for your Dallas business? Our team can help you explore options and find the right credit facility for your needs.
Contact us for a consultation to discuss your business situation and credit line options.