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How Important is a Business Credit Line?

A business credit line is a necessary tool for small businesses to make sure they have access to funds they need for their everyday operations. Many of the businesses use a line of credit as part of a larger capital access approach.

To define it, a business line of credit (LOC) is a type of revolving loan that allows access to fixed amount of capital which can be used when needed to meet short-term business needs. It is one of the strategic tools that small businesses used to finance short term capital expenditures such as:

  • Repairs of Machinery and Equipment
  • Purchase of Inventory
  • Finance a Project
  • Fund for a short expansion

A business line of credit is different from a term loan. A term loan is a one-time lump sum of cash upfront to be repaid over a fixed period. With a line of credit, you can keep reusing and repaying it as often as you like, as long as you make payments on time and you do not exceed your credit limit. A line of credit borrowing limits are typically smaller than term loans.

To qualify for a line of credit, you must have strong revenue and a history in the business. You also need a good credit score as proof of your credit worthiness. You may also apply for a larger line of credit provided you have collateral.

If your business regularly requires access to funds to be able to meet short term capital expenditures, applying for an LOC might help you.