Money Matters

What is a business line of credit and how do you apply for one?

A business line of credit gives your business flexible, on-demand access to funds without the commitment of a long-term loan. Learn what it is, how it works, and when it makes sense for your business.

Published 5 August, 20268 min read Share

As an entrepreneur, you’ve always wanted to see your customers queuing around the block just to get their hands on your latest product. 

But when that day finally arrives and, after a week or so, your coveted product is completely sold out, what should happen next? 

As much as you want to continue riding the wave of success, your business simply doesn’t have the cash to buy more supplies to meet the soaring demand. 

One solution is a business line of credit—a flexible, short-term finance option that lets your business access funds as needed, replenish inventory, and repay debt as revenue comes in. This way, your business can capitalise on peak demand without taking on a long-term financial burden. 

Before you find yourself in this situation, learn what a business line of credit is and how to apply for one, as well as what a credit line should and shouldn’t be used for and how it compares to other forms of short-term funding. 

Key takeaways

• A business line of credit is revolving finance you can draw on repeatedly up to an agreed limit — you repay and borrow again without a fresh application, and only pay interest or fees on what you actually draw down.
• It’s built for short-term needs, not long-term ones — cash flow gaps, seasonal costs, inventory, payroll, and unexpected repairs; most lenders prohibit using it for capital expenditure or repaying long-term debt, so check the terms before you draw.
• Secured lines use your assets as collateral in exchange for higher limits and lower rates — unsecured lines need no collateral but typically demand a stronger credit score, a minimum trading history, and consistent revenue.
• The headline rate isn’t the whole cost — annual, application, draw, maintenance, and inactivity fees all apply depending on the lender, and poor credit means smaller limits, shorter terms, and higher rates rather than an automatic no.
• Compare before you formally apply — most applications trigger a hard credit check, but some lenders offer soft-search eligibility checks, and having documents ready can cut approval from several days to 24–48 hours with some online lenders.

Here’s what we cover:

What is a business line of credit?

A business line of credit is a form of revolving credit that lets your business borrow up to an agreed limit, repay it, and borrow again, without making a fresh application each time.  

Like a business credit card, a credit line gives your business flexible, on-demand access to funds, either as a lump sum or in instalments. Your business only pays interest or fees on the amount it draws down. 

Business credit lines come in two forms: secured and unsecured. Here are the differences between them: 

• A secured credit line uses your company’s assets as collateral. If your business doesn’t repay the debt, the lender can claim those assets. In return, secured credit lines usually offer higher credit limits and lower interest rates. 
• An unsecured credit line doesn’t require collateral, but your business will typically need a good credit score, a minimum trading history, and consistent annual revenue to qualify.

What should a business line of credit be used for?

A business line of credit is designed for short-term funding needs, such as managing cash flow, covering seasonal costs, or buying inventory. Most lenders prohibit using a credit line for long-term debt repayments or capital expenditure. 

For example, your business may need to recruit seasonal workers or offer sign-on bonuses to incentivise top-tier talent to join your company. Alternatively, a credit line can be used to even out the ebbs and flows in your company’s cash reserves. 

Other common uses include: 

• Buying inventory or equipment. 
• Paying vendors or payroll. 
• Covering unexpected repairs. 

It’s worth checking your lender’s terms before drawing on a credit line, as restrictions on permitted uses vary between providers. 

Is it possible to apply for a business line of credit with poor credit?

While it is possible to get a business line of credit with poor credit, the terms are likely to be less favourable and may include smaller loan amounts, shorter repayment periods, and higher interest rates. 

Regardless of your company’s credit history, you may need to pay the following fees in connection with your new credit line: 

• An annual fee. 
• An application fee (to process your company’s application).
• A draw fee (each time your business draws on its credit line).
• A maintenance fee (to keep your company’s credit line active).
• An inactivity fee (if your business doesn’t use the facility for a certain period of time). 

How does a business line of credit differ from other forms of short-term financing? 

A business line of credit differs from business credit cards and business loans in its credit limit, purpose, and repayment structure.  

Understanding these differences helps you choose the right funding option for your business needs. 

Business line of credit versus business credit card

Business credit lines and business credit cards are alike in that they’re both revolving forms of credit, but they differ in three key ways: 

	Business line of credit	Business credit card
Credit limit	Higher limit, especially if secured	Lower limit
Purpose	Substantial short-term costs, such as managing cash flow	Smaller, everyday transactions like travel expenses
Interest rates and fees	Potentially lower interest rate, but additional fees apply	Interest-free periods and reward programmes available

Business line of credit versus business loan

The second alternative to a business line of credit is a business loan. Here are the main differences: 

	Business line of credit	Business loan
Credit limit	Revolving credit limit—borrow, repay, and borrow again	Lump sum up front, repaid over a fixed term with interest
Purpose	Everyday business needs and short-term costs	One-off large-scale investments, such as buying property
Repayment	Flexible—repay and redraw as needed within the limit	Fixed repayment schedule—must reapply for additional funds

How do you apply for a business line of credit? A step-by-step guide

The process of applying for a business line of credit is much like applying for a loan, requiring you to figure out how much you need, choose a lender to apply with, and present documentation of your finances for approval. 

Most lenders will assess your credit history, trading history, and financial records before making a decision. Regardless of which lender you use, you’ll need to provide the following information: 

• The nature of your business 
• The name, address, and contact details of yourself and your business 
• Your business records and other financial information, such as your company’s bank statements, balance sheets, and credit history 

The lender will assess your company’s application and let you know if it’s been approved and, if so, how much credit your business can access. 

The exact process varies between lenders, but most applications follow a similar path. Working through these steps in order can help speed up your application and improve your chances of securing favourable terms.

1. Check your credit score  

Review your business credit score before applying. A stronger score improves your chances of approval and more favourable terms. 

2. Decide how much you need 

Consider how much credit your business realistically needs and what you’ll use it for, as this will help you choose between secured and unsecured options. 

3. Compare lenders 

Research banks, credit unions, and independent lenders to find the most favourable terms, interest rates, and fee structures for your business. 

4. Gather your documents 

Prepare your business records, bank statements, balance sheets, and credit history before submitting your application. 

5. Submit your application 

Apply online or in person. The lender will run credit and security checks before making a decision. 

6. Review the terms 

If your application is approved, review the credit limit, interest rate, repayment terms, and any fees carefully before accepting. 

Once approved, your credit line will typically be available to draw on immediately. Keep track of what you borrow and when repayments are due, because staying on top of your credit line helps protect your credit score and keeps the balance available when you need it most.

Choose the right funding for your business

Whether it’s used to grow your business or meet short-term cash flow shortages, a business credit line can provide a lifeline for your business when it’s low on funds. 

If a business line of credit doesn’t quite fit the bill as a standalone funding solution, you can always combine it with complementary short-term finance options such as business credit cards for day-to-day expenses and business loans for more significant expenditure. Exploring your options carefully and comparing lenders on terms, rates, and fees will help you find the right fit and put short-term finance to work for long-term momentum. 

Frequently asked questions 

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