How a business line of credit works
A funding partner approves a credit limit. You draw part or all of it when you need cash, repay on a set schedule, and the repaid amount becomes available to draw again. You typically pay interest or a draw fee on what you use, not the full limit, although some lines charge maintenance or unused-line fees.
Lines come in different forms. Some require each draw to be repaid over a fixed number of weeks or months, while others work more like a revolving balance with a minimum payment. Some are unsecured and some take a general business lien. Ask how each draw is repaid before you sign, because that decides how a line fits your buying cycle.
Why lines suit recurring opportunities
Opportunity-driven businesses rarely know the exact date the next deal appears. A line of credit is already in place when a supplier calls with overstock or a manufacturer opens its early-order window. You draw, pay the supplier, sell the goods, repay and reuse the line for the next deal, without a new application each time.
- A gift and home store draws each summer for holiday orders and repays through December.
- A distributor draws to take early-payment discounts, then repays when customer invoices come in.
- An equipment dealer draws for pre-season parts stock and repays as spring service work arrives.
- An online seller draws for a restock when a supplier offers a volume price for a short window.
For timing advice, see the pre-season inventory buying guide and funding a supplier early-payment discount.
| Feature | Line of credit | Short-term working capital |
|---|---|---|
| Best for | Repeat buying windows | One larger, one-time deal |
| Cost basis | Mainly on amounts drawn | Full amount funded |
| Reuse | Yes, as you repay | No, reapply for the next deal |
| Typical qualification | Stronger credit and history | Often more flexible |
Line of credit or short-term working capital?
Choose a line when deals repeat and you want funds ready; choose short-term working capital for a single, larger opportunity or when you do not yet qualify for a line. Lines usually cost less per draw for repeat use but tend to ask for stronger credit, more history and sometimes more documents. Working capital is often easier to obtain but is a one-time amount.
Many growing businesses start with short-term working capital for one deal, build a repayment track record, then apply for a line once revenue and credit support it.
Costs and terms to compare
Compare the rate or draw fee, how long each draw is repaid over, payment frequency, any maintenance, origination or unused-line fees, and whether the limit can be reduced or frozen. The cheapest-looking rate is not always the cheapest line if fees apply when you are not drawing. Ask for a sample draw showing total repayment.
- Rate or fee charged per draw
- Repayment period for each draw
- Monthly or annual maintenance fees
- Fees on unused credit
- Conditions for renewing, reducing or closing the line
When a line of credit is not the answer
A line is a poor fit when you need a large amount once, when the purchase is equipment with a long useful life, or when using the line would push your total payments beyond what normal sales can carry. A line also tempts some owners to buy every deal offered. Keep a rule for which deals qualify for a draw.
For machinery and fixtures, compare equipment financing. For a new location with a longer payback, compare term loans.
What funding partners typically review
Many funders typically review time in business, monthly revenue, personal and business credit, existing debt payments and how consistent your deposits are across seasons. Requirements vary by product and funder. Seasonal businesses help their case by showing a full year of statements, so a reviewer sees the slow months alongside the busy ones.
Read what funders review and prepare the documents funders ask for.
Frequently asked questions
Can I draw on a line of credit for inventory?
Yes. Most business lines of credit allow draws for general business purposes, including inventory, freight and supplier deposits. Confirm any use restrictions in the agreement, and keep records of what each draw paid for to make bookkeeping easier.
Are there fees when I am not using the line?
Some lines charge maintenance, annual or unused-line fees, while others charge only when you draw. Ask for the full fee schedule before signing, because a line you rarely use can cost more than expected if it carries standing fees.
What credit do lines of credit usually require?
Requirements vary by product and funder. Lines generally ask for stronger credit, steadier revenue and more time in business than one-time funding, because the funder is committing to future draws. The application shows which options may fit your profile.
How often can I draw?
It depends on the line. Many allow draws whenever available credit remains, sometimes with a minimum draw amount. Some require each draw to be repaid on its own schedule, so frequent draws can stack payments. Plan draws around your sales calendar.
Can a funder reduce my limit later?
Many agreements allow the funder to review the line and adjust or suspend the limit if revenue drops or credit changes. Read the review terms, and avoid depending on unused credit for a deal you have already committed to.
Buying deals every season?
Apply online and describe your buying calendar so our funding partners can review whether a line may fit.
Updated September 14, 2026 · Prime Funding Now Funding Team