Plenty of profitable businesses still run into cash crunches. Customers pay late, a busy season needs inventory before the sales come in, or a big repair shows up out of nowhere. A business line of credit is built for exactly these moments. Here’s how business owners use one to keep cash flowing, and how to use it wisely.
Why cash flow gaps happen
Cash flow is about timing. You might have plenty of money coming in, just not at the moment the bills are due. A few common causes:
- Slow-paying invoices. You did the work, but the customer pays in 30, 60 or 90 days.
- Seasonal business. Sales peak at certain times of year, but rent and payroll don’t stop in the slow months.
- Growth. Taking on a big new contract often means spending on supplies and staff before you get paid.
- Surprises. Equipment breaks, a vehicle needs repairs, or a supplier raises prices.
A line of credit gives you a cushion for these gaps, so a timing problem doesn’t become a bigger one.
How a revolving line helps
With a business line of credit, you get a set limit and draw only what you need, when you need it. Funds go into your business checking account. You pay interest only on what you draw, and as you repay, that credit opens up again for the next time.
Our lending partners offer credit lines up to $1,000,000, with terms of 12 to 36 months and weekly or monthly payments on the amount you’ve drawn.
Covering payroll
Missing payroll is one of the fastest ways to lose good employees. If a large customer payment is running late, a line of credit lets you draw enough to pay your team on time, then repay once the customer pays you. Because the line refreshes as you repay, it’s there again the next time timing gets tight.
Buying inventory before a busy season
Retailers, distributors and many service businesses need to stock up before their busiest months. A line of credit lets you buy inventory ahead of demand, sell through it, and repay from those sales. You don’t have to drain your cash reserves or miss out on a busy season because the money wasn’t there yet.
Bridging slow-paying invoices
If your customers pay on net terms, you’re effectively lending them money until they pay. A line of credit helps fill that gap so you can keep buying materials, paying subcontractors and taking on new work while you wait.
Handling surprise expenses and opportunities
Not every need is a problem. Sometimes a supplier offers a discount for buying in bulk, or a chance to take on a big job comes up suddenly. Having a line of credit already open means you can act without starting a new application every time.
Tips for using a line of credit wisely
A line of credit is a tool, and like any tool it works best when used with a plan.
- Use it for short-term needs. It’s best for timing gaps that will be repaid from money you expect to come in.
- Have a repayment plan for each draw. Before you draw, know where the money to repay it will come from.
- Draw only what you need. You pay interest on what you draw, so smaller, targeted draws keep costs down.
- Match payments to your cash flow. Choose weekly or monthly payments based on how money comes into your business.
- Watch the fees, not just the rate. Ask about any draw or maintenance fees and compare the total cost before you sign.
- Pay on time. Many of our lending partners report to business credit bureaus, so on-time payments can help build your business credit history.
Set it up before you need it
The best time to open a line of credit is before a cash crunch hits. If you wait until payroll is due tomorrow, you’re making decisions under pressure. Getting approved ahead of time means the cushion is ready when you need it.
To be considered through our lending partners, most applicants need at least one year in business, a business checking account, $50,000 or more in annual revenue and a personal FICO score of 625 or higher. Check the details on our eligibility page, and if you’d rather not pledge property or equipment, learn how an unsecured business line of credit works. You can also compare all the line of credit options we help business owners explore.
Get started
Line of Credit LOC is a broker. We match you with lending partners that offer revolving lines of credit, and a funding advisor helps you compare your options. Many of our partners check eligibility with a soft credit pull, which doesn’t affect your credit score. Apply now. It only takes a few minutes.
FAQ
Can I use a business line of credit to pay employees?
Yes. Covering payroll during a cash flow gap is one of the most common uses. Draw what you need to pay your team, then repay when customer payments come in.
Is a line of credit good for buying inventory?
It can be, especially for seasonal businesses. You can buy stock before your busy season and repay the line from the sales.
What happens to my available credit when I repay?
As you pay down your balance, that amount becomes available to draw again, without reapplying.