What is a line of credit?

A line of credit functions as a revolving account that gives you access to a pool of money you can tap into as needed. Once you repay a portion of what you've borrowed, that amount becomes available to draw again, similar to how a credit card works. You pay interest only on the funds you actually use, not on the full credit limit.

This structure differs fundamentally from a term loan, which provides a single lump sum that you receive upfront and repay in fixed installments over a set period. With a term loan, interest accrues on the entire amount from day one. A line of credit, by contrast, gives you flexibility to access capital when cash flow dips or opportunities arise, making it useful for managing seasonal shifts in revenue or handling unexpected expenses.

Lines of credit come in secured and unsecured varieties. Secured lines typically carry lower interest rates because they're backed by collateral, while unsecured lines depend on your creditworthiness and business history. Lenders evaluating applications look at credit scores, cash flow, and time in business to set your limit and terms.

For small business owners and entrepreneurs, a line of credit serves as working capital insurance. Rather than applying for a new loan each time you need funds, the account remains open and ready. Many business loan providers in the region offer lines of credit as part of their standard lending products.