Business Line of Credit

Both are revolving credit, but business lines of credit offer much higher limits (up to $5M+), lower interest rates, and the ability to draw cash directly to your bank account. Business credit cards are easier to obtain, offer rewards, and are more convenient for everyday purchases. Many businesses use both a line of credit for larger cash needs and a credit card for day-to-day expenses.

Secured lines of credit require collateral (like real estate or equipment) but offer lower interest rates and higher credit limits. Unsecured lines don't require collateral but come with higher rates and lower limits. If you have assets available to pledge and want the best terms, a secured line is typically better. If you need flexibility and don't want to tie up assets, unsecured works well for smaller amounts.

Yes a business line of credit is well-suited for covering payroll during cash flow gaps, especially for businesses with seasonal revenue or long receivables cycles. Using a line of credit for payroll is common and generally acceptable to lenders, as long as you're using it as a bridge (not a permanent funding source) and paying it down as receivables come in.

A revolving line works like a credit card: you receive a credit limit, draw funds as needed, pay interest only on what you've borrowed, and as you repay, that credit becomes available again. For example, if you have a $100K line and draw $30K, you owe interest on $30K. If you repay $20K, you have $90K available again. Most business lines of credit are revolving.

Common fees include an annual maintenance fee ($0-$500/year), a draw fee (charged each time you access funds), an unused balance fee (charged if you don't use the line), and origination fees when you first open the line. Some lenders charge no fees at all. Always compare the total cost including fees, not just the interest rate, when evaluating offers.

You typically pay interest only on the amount drawn, not the full credit limit, accruing from the day you draw until repayment. Repaying quickly keeps costs down, which is what makes lines efficient for short gaps.

Some lines carry annual, maintenance, or inactivity fees even when you draw nothing, while others are free to keep open. Many businesses hold a line as a safety net, so it is worth comparing fee schedules before choosing.