What Is A Business Line Of Credit? How It Works, Pros & Cons And More

A business line of credit is a great way to get flexible access to funding for your business. But is it right for you? In this blog from Progressive Business Capital, we’ll take a look at the basics of business lines of credit, how they work, and their pros and cons to help you decide if this lending option may be right for you.

What Is A Business Line Of Credit And How Does It Work?

A business line of credit is sort of like a mixture of a traditional small business loan and a credit card. It’s a type of “revolving” credit, meaning that you only pay interest on the amount you withdraw against your limit, and there’s no initial lump sum payment.

For example, you could apply to a bank for a business line of credit and get a limit of $10,000, with an APR (interest rate) of 15%. Then, you can withdraw up to $10,000 in cash at any time. Once you make a withdrawal, you will have to pay 15% interest on that withdrawal until you pay it back.

So, for example, you could withdraw $2,500. Then, you would have a remaining balance of $7,500 that you could withdraw if you needed it, and you would pay 15% interest on the $2,500 you withdrew until you repay it. Then, once you repay the $2,500, you won’t owe any more interest. Until you withdraw money again, you won’t have to pay any kind of monthly bill.

What Are The Pros & Cons Of Business Lines Of Credit?

Business lines of credit have a few different benefits for business owners, thanks to their flexibility.

Pros

  • You only withdraw what you need
  • Can help manage cash flow
  • Help build a relationship with the lender
  • You can take advantage of opportunities that require immediate funding
  • No high fees for cash withdrawals, unlike a cash advance on a business credit card

However, there are a few drawbacks that mean they’re not perfect for every business or every situation.

Cons

  • Interest rates are usually higher than traditional loans
  • Applying and getting a line of credit is time-consuming and may require very good credit
  • Limits tend to be relatively low, since this is an unsecured loan
  • Could lead to irresponsible spending in some cases

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What Type Of Funding Is Right For My Business? 

At Progressive Business Capital, we work to connect businesses with reputable providers of online business loans and merchant cash advances (MCAs). If you need funding for your business, our services may be right for you.

To learn more, just fill out our express application online, or feel free to contact us or call us directly at (800) 508-4532. It’s our mission to help small business owners get the funding they need to thrive and succeed.

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