3-min read Jul 31, 2023

Unlocking Business Growth: Is a business line of credit a good idea? Pros & cons

Unlocking Business Growth: <strong>Is a business line of credit a good idea? Pros & cons</strong>

As a growing business in 2023, you’re faced with endless opportunities for growth … if you had more funding.

And there are dozens of ways you can try to access that funding — from SBA loans to equipment financing to cash advances. Options are endless… and confusing.

How do you decide whether it’s worth investing the time and effort to get approved for a business line of credit?

In this article, we’ll cover:

  • the purpose of a business line of credit
  • In depth pros & cons of a business line of credit versus other funding options
  • A list of other financing ideas to consider

What is the purpose of a business line of credit? How does it work?

First, a definition:

Unlike a typical loan, where you take out a bulk sum of money, and repay it on a schedule, a business line of credit gives you access to a sum of funds that you can withdraw as neededand you only pay interest on what you use.

The purpose of a business line of credit is to give you access to a “flexible” financing option.

How is it unique? The flexibility. A business line of credit is often described as a “revolving” loan, meaning the outstanding money goes up or down depending on your agreed-upon borrowing base. Most lenders will reassess how much you can get weekly, sometimes monthly or daily.

As your business grows and your stability or collateral increases, your line of credit will often increase with it.

Will my business benefit from a line of credit? Pros & Cons

Here’s a quick chart showing you the pros and cons of a business line of credit, as compared to other funding options like term loans, credit cards, factoring and cash advances.

Explore how other funding options work here →


Benefits of a business line of credit

Only pay for what you use

Borrowing funds just as needed helps you control interest expenses

Lower Interest Rates

Unlike credit cards or other short-term financing, business lines of credit offer lower rates

Constant access to working capital

Funds replenish as you pay back, giving you long-term access to money as needed

Lender relationship-building tool

Helps you build a long-term relationship with your banker, and lets them get to know your business

Zero-cost emergency back-up

It’s a safety net in a pinch, if there’s an unexpected expense or dip in revenue

Increases over time

Your line of credit often grows with your business, as you build trust and stability


Downsides of a business line of credit

Collateral Requirements & Risk

As a small business, lenders may need you to provide business collateral, or risk your personal collateral, like your home, to secure credit.

Hard to get approved

As a small business, you may not meet stringent requirements, or only be approved for a very minimal amount


Easy access to capital increases your risk of accumulating debt, which could be challenging to pay back

Lengthy, complex approval process

An extensive amount of paperwork is needed, and it takes at least 3 months to be approved

High fees

Although interest rates are lower, business lines of credit come with high fees  — like origination, maintenance, or even early termination fees.

Bear in mind: business lines of credit impact your business’s credit score.

As long as you’re borrowing responsibly and paying back on time, your credit score will benefit. But of course, missed payments or overborrowing will hurt your credit score. That will mean that securing financing in the future will be difficult.

“What else can I do?” Other financing solutions if you can’t access a line of credit, or have an insufficient credit line

If you’re in a non-profit, or can’t qualify for a business line of credit right now, don’t put your business growth on hold.

Here are some creative alternative funding sources out there.

  1. Payroll funding
    best for instant, short term loans, or as a zero-cost backup
  2. Services like invoice factoring
    quick and easy to qualify for. Always be cautious with this option.
  3. Business Loans like SBA
    low rates, but lengthy application process and difficult to be approved
  4. Grants
    money that you never need to repay, but that often require
    hiring a writer for the lengthy application.
  5. Equity Financing
    no monthly repayment, nothing to repay financially

See more alternative funding options to a business line of credit here →

Morris Reichman


Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.

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