Business Line of Credit
A business line of credit is a financing option where lenders provide borrowers with funds to pull from up to a certain limit. Borrowers using a business line of credit only have to pay interest on money borrowed, not the entire limit. Business credit cards are an example of a business line of credit.
A business line of credit helps businesses cover short-term costs like payroll and managing inventory and can also boost working capital, when needed.
There are two types of business lines of credit: secured and unsecured. The difference between these two types lies in the collateral. With a secured business line of credit, the borrower must use assets as collateral for the loan. An unsecured business line of credit does not require collateral. Because an unsecured line is riskier for the lender, it typically comes with a higher interest rate and a lower credit limit.
Aside from credit cards, other examples of business lines of credit include:
- Invoice factoring
- Invoice financing
- SBA lines of credit
- Asset-based lines of credit