Draw when you need it. Pay only for what you use.

A business line of credit is a flexible, revolving way to fund a company. Instead of receiving one lump sum, you are approved up to a set credit limit and then draw only what you need, when you need it. As you repay what you have drawn, that capacity refreshes and becomes available to use again. This is why it is often called a revolving line of credit, or in some markets a revolving credit facility. It sits in the background, ready, rather than being a single one-off advance.

The most important thing to understand is how a line of credit differs from a term loan. With a term loan you take the full amount up front and repay it on a fixed schedule from day one. With a line of credit you usually pay interest only on the portion you have actually drawn, not on the whole limit. If you are approved for a limit but only draw a small part of it, you are only charged on that smaller balance. Drawing, repaying and redrawing typically happens through an online dashboard or a simple transfer into your business account.

Because of this structure, a line of credit suits needs that are recurring, uneven or hard to predict, rather than a single large purchase. Owners often keep one open as a buffer, so cash is on hand the moment an opportunity or a short gap appears, without having to make a fresh funding request every time.

Eligibility for a business line of credit is set by each lender, but the things they review are broadly consistent. Most want to see how long the business has been trading, how steady its revenue and cash flow are, and the credit profile of both the business and, often, the owner. Existing debts and how the accounts are managed also feed into the picture. Every lender weighs these differently, which is exactly why offers can vary so much for the same business.

A personal guarantee is common, particularly for newer or smaller companies, though some lenders will extend a line without a personal guarantee to established businesses with strong, consistent trading. Startups and businesses without much revenue history can find a line harder to secure, but options still exist; a younger company may simply be offered a smaller starting limit, a secured structure, or a facility that grows as the trading record builds.

Whatever the criteria, the funding decision, the limit and the terms are made by the lender and are subject to approval. To put yourself in the strongest position, it helps to have a few basics ready before you compare offers.

• Recent business bank statements showing cash flow in and out
• A clear sense of your typical monthly revenue and trading history
• Up-to-date records of any existing borrowing
• An idea of how you intend to use the line and how often you will draw on it

A line of credit is at its best when the need is ongoing, variable or short-term. It is a natural fit for smoothing cash flow, covering a seasonal dip, bridging the gap while you wait on customer payments, topping up working capital, meeting payroll in a quiet stretch, or restocking inventory ahead of a busy period. Because you only pay for what you draw and the capacity refreshes as you repay, it rewards businesses with recurring, hard-to-time funding needs.

It is less suited to a single, large, one-off cost with a known price and a long payback. If you are buying a specific piece of equipment, funding a defined expansion, or taking on a fixed multi-year investment, a term loan or asset-based finance often gives a lower, more predictable cost over the life of the borrowing. And if the real issue is slow-paying invoices specifically, invoice finance may match the problem more closely than a general line.

In practice, many businesses keep a line of credit open for flexibility and reach for other funding types for big, planned purchases, using each for what it does best. The right answer depends on your situation, and the simplest way to find it is to make one request, compare the real offers that come back, and choose the structure that fits how your business actually spends and earns.