If you’re a small business owner, you’ve likely run into cash flow challenges. Long payment cycles, seasonal downturns and last minute expenses can often leave you out of cash when you need it most. Luckily, there are short-term financing solutions out there that can help you meet your funding shortfall. One of the most popular funding solutions is the line of credit. A business line of credit can take much of the stress out of your day-to-day business. That way you can spend more time attending to your business needs instead of worrying about how to pay employees or finance your next purchase.

How a Business Line of Credit Can Help

A line of credit is a source of always available credit that can be used at any time. It is commonly known as an “open-ended loan,” which means you can borrow as much or as little as you need. In this way, it offers more flexibility and freedom than other types of loans.

The debt is repaid periodically and can be borrowed as many times as necessary once it is repaid. This financing option doesn’t have any minimum monthly payments. Instead, you pay interest and fees on the portion of the available credit you borrow. As you pay the debt down, those funds become available for borrowing again.

Unlike credit cards, which carry much higher interest rates, lines of credit are generally easier to manage. Equipped with a lower interest rate from your bank, lines of credit can be more budget-friendly than other lending solution. This gives you the option of sitting your debt for longer without if necessary.

For example, if you have a $20,000 business line but don’t withdraw any money, you won’t pay any interest or fees. If you withdraw $5,000, you’ll pay interest on those funds only. The remaining $15,000 remains available at any time.

A line of credit is an ideal solution for businesses with cash flow problems. It’s also a great option for businesses looking to restock inventory.

Lines of Credit: Secured vs. Unsecured

In general, a business line of credit falls into one of the following two categories:

  • Secured: A secured loan is backed by collateral, which can include a home, vehicle or some other valuable asset you own. Collateral lines of credit usually have much lower interest rates because it’s less risk for the lender.
  • Unsecured: An unsecured loan is not backed by collateral. Since the lender is assuming more risk, interest rates tend to be higher. Unsecured loans are generally more difficult to obtain.

The business line of credit is one of the best ways to manage cash flow, but isn’t the only way. To compare your options, check out Red Door Capital’s cash flow solutions.

At Red Door, we’re able to secure lines of credit based on accounts receivable, invoices, inventory and credit history. We also have a credit line of product that is specific to retail businesses and locations.

Benefits of a Business line of Credit

A business credit line has numerous advantages. The U.S. Small Business Administration has identified five in particular.

1. Flexible payments: Unlike traditional loans that require set monthly payments, business lines offer much more flexible repayment options. If your business is having a slow month, consider only paying the minimum due.

2. Separate accounts: Separating your personal and business expenses is crucial for tax and liability purposes. This also applies to business loans. The benefit of a business line is that it allows you to track business expenses since the credit is dedicated solely for business operations.

3. Cash on demand: A business line of credit allows you to draw funds only when you actually need them. Since you’ve already qualified and have the funds available to you, credit lines are literally the fastest way to access capital. This means cash on demand is only a phone call or few clicks away.

4. Build business credit: If your business is fresh out of the gate, establishing credit is difficult. Your business must first establish a rating with the major credit reporting agencies. A business credit line allows you to build your credit quickly. Favorable repayment terms mean you won’t be scrambling at the last second to make a payment.

5. Use it for whatever your need: When it comes to business financing, few options are as flexible as a credit line. If you have a revolving line of credit, you can use your funds for just about anything business-related.

For a primer on business lines of credit, check out the following article.

Conclusion: Why a Business Credit Line Could Be Right for You

If you’re a new business owner, a business line of credit can help you create more consistent cash flow. It cam also be your first line of defense against unexpected bills and expenses. Businesses with high capital costs will also find the line of credit one of the easiest ways to finance equipment.

In all these instances, access to a credit line gives you cash flow when you need it. This will help you keep your head above water during seasonal downturns.

Lines of credit are common among small business owners. Industry research shows that roughly half of small business owners currently employ a credit line. More than a quarter use their credit line on a regular basis.

Don’t let unexpected business expanses reduce your cash flow. To explore your options, contact Red Door Capital today.

More from Red Door

For more small business solutions, be sure to check out our blog. If you’re looking for financing, check out the following articles:


Marco Carbajo (July 14, 2015). “5 Reasons a Business Revolving Line of Credit May Benefit You.” U.S. Small Business Administration.

National Federation of Independent Business (January 2012). Small Business, Credit Access, and a Lingering Recession.

Carrie Smith (February 10, 2015). “How to Use a Line of Credit to Your Advantage.” The Simple Dollar.

Jeff White (January 19, 2017). “What Is a Small Business Line of Credit? The Ultimate Guide.” FitSmallBusiness.com.