How does a business line of credit work?

3 minute readUpdated October 13, 2026By the NorthAxis Capital team

A business line of credit is a set amount of money you can borrow from whenever you need it. You only pay interest on the part you use. When you pay it back, you can use it again.

How does it work?

1. The lender gives you a limit, like $50,000.
2. You take out money when you need it.
3. You pay interest only on what you took out.
4. You pay it back, and that money is ready to use again.

It works a bit like a credit card, but usually with a lower rate and a higher limit.

An example

What is a line of credit good for?

• Buying stock before a busy season
• Paying staff while you wait for customers to pay
• Covering slow months
• A safety net for surprise costs

It is not the best tool for one big purchase, like a building or a big machine. A term loan usually fits that better.

Secured or unsecured?

• Secured: backed by business assets, like your receivables or equipment. Often a higher limit and a lower rate.
• Unsecured: no specific assets backing it. Usually a smaller limit and a higher rate. Lenders may still ask for a personal guarantee.

Small businesses can also get a line of credit of up to $150,000 through the CSBFP. Its rate is capped at the lender’s prime rate plus 5%.

How do you get one?

Lenders usually look at your sales, your cash flow, your credit and how long you’ve been in business. Have your recent bank statements and financial statements ready. See the full list.

Line of credit or term loan?

Use a line of credit for needs that come and go. Use a term loan for one big cost. Many businesses have both. Compare them side by side.

Want a line of credit for your business? Apply now.