A business line of credit (LOC) is a financial product that provides businesses with flexible access to funds. Unlike a traditional loan, a line of credit allows a company to borrow up to a predetermined limit, with the ability to repay and borrow again as needed. This makes it an essential tool for managing cash flow, covering unexpected expenses, or taking advantage of growth opportunities.

Key features of a business line of credit:

  • Revolving Credit: Similar to a credit card, funds can be borrowed, repaid, and borrowed again.
  • Flexible Repayment: You only pay interest on the amount used, not the entire credit limit.
  • Unsecured or Secured: Can be either based on the business's creditworthiness (unsecured) or backed by collateral (secured).

Important Considerations:

A business line of credit offers flexibility, but it’s essential to maintain careful management to avoid overspending and accumulating high-interest debt.

The table below compares the two main types of business lines of credit:

Type Interest Rates Repayment Terms Collateral
Unsecured LOC Higher Flexible, based on usage No
Secured LOC Lower Flexible, based on usage Yes (assets)