# 7 Benefits to Taking Out a Business Line of Credit A [business line of credit](/loans-and-financing/line-of-credit/) gives you access to funds as needed, up to a set limit, and you pay interest only on what you draw. Its main benefits are covering unexpected expenses, seizing growth opportunities, smoothing cash flow, flexible repayment and building business credit with on-time payments, depending on the provider. By [Capital Gurus Editorial Team](https://capitalgurus.com/editorial-policy/) · [Business Line of Credit](https://capitalgurus.com/blog/category/line-of-credit/) · Published January 25, 2024 · Updated August 21, 2026 [See your financing options](https://capitalgurus.com/apply/) — soft credit pull only, no obligation ### Key Takeaways - Flexible access to funds - Opportunity to cover unexpected expenses - Ability to manage cash flow - Interest charged only on what you draw - Unsecured options that may not require collateral, depending on the provider ## Understanding Business Lines of Credit ### Benefits of Business Lines of Credit A business line of credit can provide many benefits to business owners. Below we’ll list just five of them: 1. **Cover unexpected expenses**: A line of credit can give your business the financial ability to adapt and cover unexpected costs, such as a sudden drop in sales or an unplanned repair. 2. **Take advantage of opportunities**: With a business credit line, you’ll have the working capital available to take advantage of opportunities as they arise. This could include expanding your business or taking on a new project. 3. **Manage cash flow**: Business lines of credit can help you manage your cash flow by giving you access to funds when you need them. This can be especially helpful during slow periods or when you’re waiting on invoices to be paid. 4. **Interest only on what you draw**: You pay interest on the amount you use, not on the full limit, which can make a line cheaper to hold than a lump-sum loan you don’t fully need. Rates vary by provider, product and credit profile. 5. **Flexibility**: Business lines of credit offer the flexibility to only borrow the amount you need, when you need it. You’ll also have the flexibility to repay the loan over time, making it easier to manage your working capital. ### Types of Business Lines of Credit After exploring the various benefits that a business line of credit can offer, it’s crucial to understand the different types available to your business. Essentially, lines of credit can be categorized as either **secured** or *unsecured*, with each type catering to different financial situations and credit profiles. Secured lines of credit require collateral, such as business assets, which can be beneficial if your business has a less-than-perfect credit history. On the other hand, unsecured lines do not require specific collateral but may demand a personal guarantee and generally come with higher interest rates. Moreover, lines of credit are either *revolving* or non-revolving. With a revolving line of credit, as you repay the borrowed amount, the funds become available again for use without reapplying. Non-revolving lines, similar to traditional term loans, do not replenish after repayment. Here’s a quick overview of the types of lines of credit offered under the SBA 7(a) loan program: - **Seasonal CAPLines**: For businesses needing to cover seasonal fluctuations. - **Contract CAPLines**: Tailored for contractors with specific project needs. - **Builders CAPLines**: Designed for construction and rehabilitation projects. Each of these SBA CAPLines addresses distinct business requirements and offers terms up to 10 years, with credit amounts reaching up to $5 million, depending on the program. ### Eligibility Criteria for Business Lines of Credit When applying for a business line of credit, it’s essential to meet specific [eligibility criteria](https://www.forbes.com/advisor/business-loans/how-to-get-a-business-line-of-credit/) to increase the likelihood of approval. Here are the key factors that lenders typically consider: - **Personal Credit Score**: Lenders assess the personal credit score to determine eligibility. A higher credit score often leads to more favorable terms. - **Business Revenue**: Providing proof of business revenue, such as tax returns and financial statements, is crucial for demonstrating financial stability. - **Time in Business**: The longer the business has been in operation, the better the chances of qualifying for a line of credit. A history of on-time payments is also favorable. - **Collateral**: While not always required, offering collateral can strengthen the application and provide security for the lender. It’s important to note that each lender may have specific requirements, so it’s advisable to inquire about their eligibility criteria before applying. > Building strong relationships with potential lenders can enhance the application process and increase the chances of securing a business line of credit. By understanding and meeting these eligibility criteria, businesses can position themselves favorably when seeking a line of credit. ### How to Use a Business Line of Credit to Build Business Credit Building a strong business credit profile matters. A business line of credit not only provides the flexibility to manage cash flow but also offers an opportunity to establish and improve your company’s creditworthiness. Here’s how to use a business line of credit strategically: - Timely Payments: Consistently making payments on time is crucial. Each on-time payment may be reported to business credit bureaus, depending on the provider, positively impacting your credit score. - *Credit Utilization*: Maintain a low credit utilization ratio. Using a small portion of the available credit and paying it off regularly demonstrates responsible credit management. - Diverse Credit Mix: Adding a line of credit to your business’s financial tools can diversify its credit mix, which can benefit its credit profile. - Long-term Relationship: Establish a long-term relationship with the credit provider. Over time, this can lead to increased trust and potentially higher credit limits. > Tip: Always monitor your business credit report to ensure accuracy and to track your progress in building a strong credit history. By following these practices, you can use a business line of credit to meet immediate financial needs and lay a solid foundation for your business credit. This, in turn, can open doors to more favorable borrowing terms and larger credit lines in the future. Business lines of credit are a flexible and convenient financing option for businesses. They provide access to funds that can be used for various business needs, such as managing cash flow, purchasing inventory, or covering unexpected expenses. Unlike a [traditional loan](https://capitalgurus.com/apply/), a business line of credit allows you to borrow funds on an as-needed basis, up to a predetermined credit limit. This means you only pay interest on the amount you use, making it a cost-effective financing solution. Additionally, business lines of credit can help businesses build a strong credit history and improve their credit score when used responsibly. If you’re looking for a flexible financing option to support your business’s growth and financial needs, Capital Gurus can help you compare line of credit offers from providers in our network. ## Conclusion In conclusion, a business line of credit offers a range of benefits for small businesses, providing flexibility, access to working capital, and the ability to manage cash flow effectively. With the potential to cover unexpected expenses and take advantage of growth opportunities, a business line of credit is a valuable financial tool for entrepreneurs. Additionally, the separation of personal and business finances, paying interest only on what you draw, and the option, with some providers, of unsecured lines of credit further enhance the appeal of this financing option. Small business owners with an EIN number should explore these specialized loan options to cater to their specific needs and circumstances. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. Example: Say a landscaping company has a revolving line it rarely touches in summer. When a mower breaks down during a slow winter month, the owner draws only what the repair costs, pays it back as spring work comes in, and the repaid amount becomes available again without reapplying. Always assess your business’s financial needs and risk tolerance when choosing between secured and unsecured, or revolving and non-revolving lines of credit. Decisions from some providers the same day, depending on the provider. [Get my options](https://capitalgurus.com/apply/) · [Call (725) 425-4307](tel:+17254254307) ## Frequently asked questions ### How does my line of credit payback work? With a line of credit from a provider in our network, draws are consolidated into one loan with one easy weekly payment. As you pay back your principal, you replenish available funds. Depending on the funding provider, your line of credit may have no draw fees; some providers charge a monthly maintenance fee. All fees are disclosed in your offer before you sign. Adjust the payment amount and term to ensure a comfortable weekly payment. ### Can I get a credit line increase? There are some times when you could really use access to additional funds. Based on your cash flow, net income and payback history, you may be eligible for a credit line increase. ### How much will it cost? The total cost of your line of credit will vary based on a number of factors, including your personal and business credit scores, time in business and annual revenue and cash flow. ### What other small business loans can I get in addition to my line of credit? You may have a project that could benefit from other types of small business loans beyond your business line of credit. A term loan from a provider in our network gives you a lump sum that you repay on a set schedule. Talk to a funding advisor if you think a term loan could help your business. ### How can I use my line of credit to build business credit? Depending on the funding provider, your on-time payments may be reported to business credit bureaus. Ask your funding specialist whether the provider behind your offer reports payment history — when it does, paying on time helps your business build a strong credit profile. ### What are the types of business lines of credit? There are several types of business lines of credit, including secured business line of credit, unsecured line of credit, revolving line of credit, and non-revolving line of credit. ### What are the eligibility criteria for a business line of credit? Each provider in our network sets its own requirements for a line of credit. Most look at time in business, monthly revenue, personal credit and a business checking account, and some consider files with lower credit scores. ## Related reading - [Pros and Cons of a Secured Business Line of Credit](https://capitalgurus.com/blog/secured-business-line-of-credit-pros-and-cons/) - [How to Strategically Use a Business Line of Credit to Manage Cash Flow Gaps](https://capitalgurus.com/blog/business-line-of-credit-cash-flow-gaps/) - [How to Use a Business Line of Credit to Support Business Growth](https://capitalgurus.com/blog/business-line-of-credit-for-growth/) - [business line of credit](https://capitalgurus.com/loans-and-financing/line-of-credit/) ## Next steps - [See your financing options](https://capitalgurus.com/apply/) — One application, soft pull only - [Business loan calculator](https://capitalgurus.com/calculators/business-loan-calculator/) — Estimate a payment - [Talk to a funding advisor](https://capitalgurus.com/contacts/) — Questions first? Or call a funding advisor at [(725) 425-4307](tel:+17254254307) ## One application. Every funding option. Skip the lender-by-lender chase. One application, three months of bank statements, and a dedicated advisor who brings the offers back to you side by side — terms set by the provider, disclosed before you sign. - [Apply now](https://capitalgurus.com/apply/) - [Call (725) 425-4307](tel:+17254254307) About 5 minutes, soft credit pull only · [talk to a funding advisor](https://capitalgurus.com/contacts/) --- Source: https://capitalgurus.com/blog/business-line-of-credit-benefits/ · Capital Gurus is not a lender.