A business line of credit is a type of credit account that you can borrow against, up to a set dollar limit. Once you’re approved for a line of credit, you can access the funds as you need them by making withdrawals (called “draws”) against your account. You can draw as many times as you like, as long as your outstanding balance doesn’t go beyond your account’s available credit limit.

Business lines of credit may be secured or unsecured, and either closed or revolving.

Secured business lines of credit generally require collateral, while unsecured business lines of credit are approved based on your personal and business finances and creditworthiness.

Similar to a credit card, revolving lines of credit let you pay down and borrow against a replenishing credit limit multiple times, whereas closed lines of credit mean that your total available funds are dispersed in full to you at the start of the loan term.

An unsecured revolving line of credit works by letting you borrow money as you need it. You can draw as little as your account’s minimum draw requirement, or as much as the total of your approved credit limit – and you only pay interest on the amount you draw.

When you take a draw, the funds are electronically transferred to your bank account. You’ll then repay the draw on a weekly or monthly basis over the course of a specific repayment term, such as 12 or 18 months.

A Business Line of Credit can be used for almost any business need, including covering operating costs during the slow season, paying for recurring expenses and preparing for a new project. A line of credit can also be saved, undrawn on, to help with emergency expenses if they come up.

A business line of credit gives you the option, but not the requirement, to borrow money as you need it. Having an open business line of credit can be helpful whether you experience a setback or want to take advantage of a new opportunity, but don’t want to worry about applying for and getting a new loan. A line of credit can also be less expensive than a term loan when you need to make recurring payments, as you’ll only pay interest on the money you borrow.

A business line of credit may have high interest rates. If it’s a variable rate, you also risk having to make higher payments in the future. Additionally, various fees, such as draw fees and maintenance fees, can add to your overall financing costs. The lender may also lower your credit limit without warning, limiting your ability to use your line of credit.