If you’re a small business owner, you probably know about loans—but a loan isn’t always the best financing option. A business line of credit works differently and can offer more flexibility for managing cash flow, covering expenses, or seizing growth opportunities.
Loan vs. Line of Credit
A loan is usually a lump sum given for a specific purpose—like buying real estate, equipment, or inventory. The drawback is you start paying interest immediately on the full amount, even if you don’t use all the funds right away. This can be costly if you’re uncertain about your exact needs.
A business line of credit, on the other hand, allows you to draw funds only when you need them. You pay interest only on what you use, and unlike many loans, credit lines typically have no prepayment penalty. They’re designed to be drawn from and repaid repeatedly, making them a flexible safety net.
Credit Line vs. Credit Card
Credit cards are convenient but come with high interest rates, low credit limits, and strict approval tied to your personal credit. While they can help with small purchases, they often lack the flexibility and affordability growing businesses require. A business credit line functions similarly in that it’s revolving, but with higher limits, lower rates, and easier long-term management.
The Bottom Line
A business line of credit offers affordable, flexible financing you can keep in reserve for when it matters most—without paying interest on unused funds. With straightforward approvals, manageable rates, and the ability to grow with your business, it’s a smart tool every business owner should consider.