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Dealing with uneven cash flow when running a business is common, but even during a down month, the bills don't stop coming. A business line of credit gives you a flexible source of money you can pull from when you need it.
You only pay interest on what you borrow, not on the entire limit. The flexibility of a business line of credit is a good fit for short-term gaps in cash flow, buying inventory, or weathering a slow period for your business.
Over the years, I've helped hundreds of business owners get a line of credit, and it's one of the most flexible forms of financing available. Below, I'll go over how a business line of credit works, what you need to qualify, and how to get one.
What Is a Business Line of Credit?
A business line of credit is a lot like a business credit card. You get approved for a certain amount, and you can draw any amount up to that limit. You only pay interest on the amount you borrow. Once you pay it off, the money is available again.
This type of financing is called revolving credit. Revolving credit lets you keep drawing funds while you repay what you've already borrowed. This means you don't have to reapply each time you need more money. As I mentioned, this type of financing is a good fit for companies with uneven income, like waiting several weeks for customer payments or dealing with a seasonal slowdown.
Comparing Financing Options
Below, I go over how to finance your small business and compare several options with a business line of credit.
| Type of financing | How it works | Good for |
|---|---|---|
| Business line of credit | Revolving financing you draw down on as you need it, paying interest only on what you've borrowed | Ongoing or unpredictable cash flow issues |
| Term loan | You borrow a specific amount and agree to repay it over a specific period of time | A one-time expense |
| Working capital loan | A loan that provides working capital to help fund daily operations like payroll and supplies | Everyday expenses when cash is low |
| Equipment financing | Financing tied to the purchase of new or upgraded equipment, where the equipment acts as collateral | Buying new equipment or upgrading existing equipment |
| Invoice factoring | Selling your outstanding accounts receivable for cash now instead of waiting for customers to pay | When you're waiting for a customer to pay their bill |
| Merchant cash advance | Advance funds based on a percentage of your projected future credit and debit card sales | Established businesses with consistent card sales |
| SBA loan | Partly guaranteed by the Small Business Administration (SBA), up to $5 million. Funding times can be slower. | Large funding needs when you can afford to wait |
| Home equity line of credit (HELOC) | A secured line that uses the owner's home equity rather than business credit history, with lower rates and longer terms | Owners with home equity who want lower rates or longer terms |
How Do I Get a Business Line of Credit?
Getting a business line of credit is simple. Here's how the process works with Clarify:
Apply online
Complete our easy two-minute application. This doesn't impact your credit score.
Upload your documents
You'll need three months of recent bank statements to verify your revenue.
Get matched
We match you with our panel of 75+ vetted, reputable lenders. They compete for your business, and we present you with your options.
Get funded
If you're approved, your funding could happen the same day.
Rates and Fees
At Clarify Capital, APRs are as low as 6%. The interest rate you're offered depends on your credit score, your revenue, and how long you've been in business. The stronger your application, the lower your APR will likely be.
You only pay interest on the amounts you withdraw from your available line of credit, not on the entire credit limit available to you. Terms can range from six to 36 months depending on the lender, and there may be an origination fee.
