 TITLE: What Is a Business Line of Credit? CONTENT: How Does a Business Line of Credit Work?\n----------------------------------------\nMost business lines of credit are revolving credit. Kind of like a credit card, a revolving business credit line gives you a set credit limit up to which you can borrow. You can either carry the balance, making at least the minimum payment each month, or pay it off in full; interest accrues only on the amount you borrow.\nAs you pay back the funds you've borrowed, a revolving credit line lets you borrow more without having to apply for a new line of credit. There are, however, business credit lines that do not allow you to revolve debt; these require you to reapply after you've paid back what you borrowed.\nBusiness lines of credit come in two basic flavors: secured and unsecured.\n*   **Secured lines of credit** require collateral. This might be business assets such as equipment, inventory or receivables, or personal assets such as your house. There are also secured lines of credit that require a personal guarantee or a lien on your business. If your company is new, with low sales and no established business credit score, a secured line of credit may be easier to get. Just be sure you don't pledge any collateral you don't want to lose.\n*   **Unsecured lines of credit** don't require collateral, but they usually require annual revenue, a higher business and personal credit score, and a longer business history. This evidence of success helps convince the lender that you'll be able to repay the money.\nEven if your business can qualify for an unsecured line of credit, it may be to your advantage to apply for a secured line of credit. That's because unsecured credit lines tend to charge higher interest rates and offer lower credit limits.\nYou might be wondering why a business owner would get a line of credit rather than a loan. There are some key differences between a business loan and a business line of credit.\nWhereas a line of credit is revolving credit, a business loan is installment credit. When your loan application is approved, you get a lump sum of money and must start making fixed monthly payments on it right away—even if the money is just sitting in your bank account. When you pay off the loan, the account is closed. If you want more money, you'll have to apply for a new loan. Business loans are often restricted to certain uses, such as buying equipment or real estate.\nA business line of credit on the other hand can be used for whatever business purpose you want. Business credit lines are usually available for smaller amounts than loans, with about $250,000 being the maximum. Because banks are often reluctant to issue smaller loans, a line of credit can be easier to get. END