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How Does a Business Line of Credit Work?

A business line of credit is a flexible, revolving form of borrowing that allows a company to access funds as needed, up to a predetermined limit. Here’s how it typically works:

Approval and Credit Limit:

A financial institution approves the business for a specific maximum amount of credit based on its creditworthiness, financial health, and other factors. This maximum amount is known as the credit limit.

Flexible Access to Funds.

Unlike a traditional term loan, where the borrower receives a lump sum upfront, a line of credit allows the business to draw funds as needed, up to the credit limit. The company can use these funds for various purposes, such as managing cash flow, purchasing inventory, or other short-term needs.

Interest and Repayment:

Interest is charged only on the amount of money actually borrowed, not on the entire credit limit. The business can make withdrawals and repayments within the credit line’s terms, offering considerable flexibility. Typically, there’s a minimum monthly payment that includes interest and possibly part of the principal.

Revolving Credit:

As the business repays the borrowed amount, the credit becomes available again up to the limit, offering a continuous source of funds. This is known as revolving credit, meaning the business can use, repay, and reuse funds repeatedly during the life of the line of credit.

Fees and Terms:

Lines of credit may come with various fees, such as annual fees, transaction fees, or maintenance fees. The specific terms, including interest rates and repayment schedules, can vary significantly between lenders and depend on the business’s creditworthiness and the specific agreement.

Learn more about how to apply for an Business Line of Credit.

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Our goal is to provide you with expert help and guidance for you needs. Whether you need funding or business services for your trucking company, you are in reliable hands.

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