What is a Business Line of Credit?

How a Working Capital Line of Credit Helps Keep Your Business Moving Forward

Every business, no matter how successful, faces times when cash flow is stretched thin. A business line of credit, also known as a working capital line of credit, is a fast and flexible financing solution designed to help you manage expenses and seize opportunities as they arise.

What Is a Business Line of Credit?

A business line of credit is a revolving loan that provides access to a set amount of funds you can draw from whenever your cash balances are low. Unlike a traditional term loan, you’re not required to borrow the full amount upfront. Instead, you withdraw only what you need, and pay interest only on what you use.

When your receivables catch up or your cash flow improves, you can pay down your balance. Your available credit replenishes as you repay, so funds remain accessible without requiring a reapplication each time.

Most lines of credit require monthly interest payments based solely on your outstanding balance, making this an affordable and predictable way to manage working capital.

Why Do Businesses Use a Line of Credit?

Small and mid-sized businesses commonly use a line of credit to:

• Bridge timing gaps between expenses (such as payroll, rent, and accounts payable) and incoming receivables
• Fund growth when sales increase faster than cash collections, driving up accounts receivable or inventory
• Secure early payment discounts with key suppliers and vendors
• Purchase inventory in bulk to mitigate supply chain disruptions or lock in volume discounts
• Smooth seasonal cash flow fluctuations
  

How Business Lines of Credit Work

Typically, working capital lines of credit mature after 12 months and are renewed annually based on your business performance and collateral. Rates are variable and linked to an index, such as the Prime Rate or SOFR, which means your payments can fluctuate with market conditions.

Most lines are secured by your business assets, such as receivables and inventory, and your lender may monitor balances to ensure they remain within your borrowing base.

Short-Term Lines of Credit

If you have a one-time project or a short-term funding need, a short-term line of credit may be a better fit. For example:

• Financing a large equipment purchase over several months
• Covering costs for a remodel or expansion project
• Consolidating multiple equipment purchases into a single loan

When your project is complete, the outstanding balance typically converts into a structured term loan with fixed repayment terms.

Build a Banking Relationship That Supports Your Growth

A business line of credit works best when you partner with a bank that takes the time to understand your goals, seasonality, and cash flow cycles. At Scale Bank, our experienced banking professionals work closely with you to tailor financing options that align with your vision and help you stay prepared for what’s next.

Ready to solve your immediate working capital needs or plan for future growth? Discover how a business line of credit or invoice factoring can enhance your business operations.