Compare Business Line of Credit

Last updated 03 Oct 2021

A business line of credit or overdraft facility is a very flexible form of lending where you have cash available from a lender for you to draw down on as and when you need it, at previously agreed upon terms.

Maintaining a business line of credit allows your business to be nimble in the event of a sudden business opportunity or large order while simultaneously reducing business risk should any unforeseen or emergency expenditures occur. Businesses that operate in industries that experience highly seasonal revenues find a line of credit especially useful to balance cash flows.

Key Features

Loan Size

$15k to $2m

Loan Term

6 months to 3 years

Interest Rate

5% - 15%

Approval Speed

Fast

Common Uses of a Business Line of Credit

The flexible nature of this type of loan makes it ideal to provide capital for unexpected opportunities or to cover emergency expenditure or short term cashflow shortfalls.

You only pay interest on the amount you draw down.

A line of credit will allow you to repay your debt at any time and then draw down again in the future.

A credit card is essentially an expensive form of a line of credit.

Keep in Mind

There may be fees applied to set up or maintain a line of credit even if it is never used.

Interest rate jumps dramatically if you draw down in excess of the agreed upon amount.

The line of credit may also introduce some funding risk as the bank or lender can cancel the facility at their discretion.

Who Qualifies for a Business Line of Credit?

Traditional bank lenders prefer to see borrowers who have at least two years of operating history to qualify for a business line of credit.

A larger line of credit will require collateral such as a property or other significant asset.

A start up would in general only be eligible for a business line of credit if the founder posts collateral and/or a personal guarantee.

Advantages & Disadvantages

Highly flexible form funding

Allows for early repayments of dent

Straightforward application process

Pay only for what you borrow

Fees may be applicable even for undrawn facilities

Lender can cancel facility at any time

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