What is a business line of credit?

(For information on OnDeck’s business line of credit product, visit this page.)

Our Humpday Help section is designed to provide business owners useful and helpful information about the different types of financing available.

Last week, we explored merchant cash advances. This week, we will examine business lines of credit.

  • What is a business line of credit?

    Business lines of credit are funds that are available for you to withdraw from as you need them.

  • What is the difference between a true business loan and a business line of credit?

    Although some companies use the terms interchangeably, the two are quite different. True business loans, such as those offered by OnDeck, lend the full amount upfront so you can put the capital to work immediately.

    With a business line of credit, you can “draw” on your account whenever you need the capital – whether that need is tomorrow, next week, or next month.

  • How long does it take to apply and how much does it cost?

    It depends on the company providing you the credit and the amount of your line. Be sure to ask your provider.

  • What does repayment look like?

    A business line of credit requires payments only as you draw on your account. For example, though your company may maintain a business line of credit, your balance will remain at zero until you make withdrawals.

    However, once you draw on your account, repayment can be weekly or monthly. Also, some providers charge a monthly fee for maintaining your account – be sure to ask your provider about this.

  • Will it build my business credit?

    Yes. Business lines of credit help increase your company’s creditworthiness because providers report repayments back to credit bureaus. For information about your business credit, click here.

  • What are common uses of business lines of credit?

    While true business loans (such as those offered by OnDeck) are ideal for immediate capital needs, business lines of credit are designed for capital needs in the foreseeable future since you can draw on it when you need.

    Examples include managing your business’ cash flow, supporting accounts receivable, taking advantage of special deals on inventory, or buying or repairing equipment.

If you have any additional questions, please leave a comment for us below. Be sure to check back next week when we explore SBA loans.

OnDeck is a Google Ventures-backed company with an A+ Rating with the Better Business Bureau. The company offers small business loans nationwide to over 725 different industries. For more information about OnDeck small business loans, click here.