What are Lines of Credit?

A business line of credit is a flexible financing option used by small business owners as a solution for working capital needs. Business lines of credit provide small businesses with the option to draw from their line of credit when they need to use capital without having to pay interest until money is actually borrowed. Some business lines of credit are unsecured, while others are secured, using different assets as collateral. Secured lines of credit tend to have lower interest rates since there is collateral to protect and cover the lender in case the business loan is not paid back.

One of the major benefits of using a small business line of credit for small business owners is the revolving nature of a line of credit. With a revolving line of credit, the balance of money available goes up and down based on how much money the small business spends, and after the capital spent is paid back, the interest charges are paid and the original capital amount is available again. Basically, as small business owners make payments toward the money they spent on their line of credit (including interest), the amount of availability goes back up. This flexibility provided by business Lines of Credit makes it an attractive financing option for business owners because the money is there for them when they need it. When a small business owner uses the funds, they pay interest on the money used, but when they don’t use the amount available, they don’t have to pay interest.