Lines of credit
A business line of credit gives you access to funds up to a limit. You draw what you need, repay it and draw again, paying interest only on what you use.
Key points
- A line of credit lets you borrow up to a set limit, repay and borrow again.
- You only pay interest on what you’ve actually used.
- It’s built for short-term needs like inventory, payroll gaps and seasonal swings.
- Rates are usually variable, and the line is reviewed regularly.
What is a business line of credit?
A line of credit works like a business credit card, but with a lower rate and a higher limit. You’re approved for a maximum amount, draw what you need, and repay it as cash comes in. Once repaid, the money is available again.
Interest is only charged on the balance you’re using. A $100,000 line costs nothing in interest if you never touch it, though some lenders charge a small fee for keeping it open.
Line of credit or term loan?
| Line of credit | Term loan | |
|---|---|---|
| How you get the money | Draw as needed, up to a limit | One lump sum |
| Interest | Only on what you use | On the full amount from day one |
| Repayment | Flexible, often interest-only minimums | Fixed payments over a set term |
| Best for | Short-term and uneven needs | One-time investments |
How the cost works
A wholesaler has a $100,000 line at 9%. It draws $30,000 to buy stock before the holidays and repays it two months later, when customers pay.
| Amount | |
|---|---|
| Credit limit | $100,000 |
| Amount used | $30,000 for two months |
| Interest paid | About $450 |
| Available again afterwards | $100,000 |
Fees and rates vary by lender.
Rates, fees and security
Most business lines have a variable rate tied to prime, so the cost moves with interest rates. Some lenders charge an annual review fee or a small fee on the unused portion.
Smaller lines are often backed by a personal guarantee. Larger lines are commonly secured by your receivables and inventory, and the limit may move with those balances. This is called asset-based lending.
How NorthMerit can help
Apply once and we’ll connect you with one financing partner who works with businesses like yours. It’s free, and there’s no obligation.
Using a line well
A line of credit is meant to go up and down. If yours stays close to the limit for months, that’s a sign the business needs longer-term financing, and lenders notice it at review time. Keep the paperwork for your annual review ready, and ask your lender what would cause them to reduce your limit, so there are no surprises.
Common questions
How is a line of credit different from a loan?
Is there a cost when I’m not using it?
Industries that use it.
Construction and trades
Contractors carry equipment costs and wait on progress payments. Financing that matches project timing keeps crews working.
Learn moreTransportation and logistics
Carriers and logistics firms run on trucks, fuel and receivables that pay in 30 to 90 days.
Learn moreManufacturing
Manufacturers balance machinery, inventory and customer terms. Financing can match each to the right structure.
Learn moreWholesale and distribution
Distributors buy inventory up front and get paid later. Working capital closes that gap.
Learn moreRestaurants and hospitality
Restaurants and hotels invest in fit-outs and equipment and manage seasonal traffic.
Learn moreAgriculture
Farms and agribusinesses finance equipment and manage revenue that arrives at harvest.
Learn moreThe right financing, from the right partner.
Apply once. One financing partner who knows businesses like yours. Free, with no obligation.
