Business Line of Credit

A business line of credit (LOC) is a revolving facility you draw from when expenses pop up, then repay and reuse. It’s designed for short-term operating needs, not long-life assets. If you want the full overview, start here: Business Line of Credit.

Common uses (Canadian SMEs)

• Inventory & supplier deposits: Buy stock before sales convert; secure volume pricing.
  
  
• Payroll & staffing gaps: Cover weeks where receivables haven’t paid yet.
  
  
• Repairs & rush purchases: Keep trucks, machines, and POS systems running.
  
  
• Seasonality & project ramp-ups: Front materials and labour for contracts, bridge slower months.
  
  
• Marketing bursts: Fund campaigns with short, measurable payback.
  
  
• Bridging slow A/R: When clients pay in 30–60 days, the LOC fills the timing gap. For invoice-heavy businesses, also compare Invoice/Freight Factoring.
  
  

When a LOC beats a term loan

If your need is a single, large expense with multi-year benefit (e.g., machinery), a term facility or Equipment Loan usually fits better. For mixed needs, see Working Capital Loans.

Secured vs. unsecured lines

• Secured LOC: Backed by A/R, inventory, or a GSA; tends to offer larger limits and lower cost. Consider Secured Loan or Asset-Based Lending if you’re asset-heavy.
  
  
• Unsecured LOC/loan: Faster, simpler, smaller limits and higher cost; useful for newer or light-asset firms. See Unsecured Loan.
  
  

How lenders size your LOC

They look at bank statements, deposit stability, A/R quality, margins, and existing obligations. Limits often grow with performance. If you already carry short, higher-cost debt, you may consolidate later via Business Refinancing.

Practical tips to use a LOC well

• Match draws to near-term cash conversion. Don’t finance long-term assets on a revolving line.
  
  
• Right-size the limit. Start modest; increase as turns prove out.
  
  
• Track true cost. Interest accrues only on drawn amounts—model it in the calculator.
  
  
• Pair tools smartly. Example: LOC for inventory + Term Loan for a one-off upgrade; or pair with Invoice Factoring if customers pay slowly.
  
  

FAQ

Is a LOC better than a loan for payroll?
Often yes—payroll is recurring and short-term. Use a LOC; use a term loan for defined, one-time costs.

Can I use a LOC for equipment?
For small, quick fixes maybe; for major purchases, use Equipment Loans to avoid tying up your revolving limit.

How fast can I get a LOC?
With a clean file (bank statements, A/R), boutique programs can move quickly. Start with Working Capital Loan to explore options.

Do I need collateral?
Not always. Unsecured options exist; secured lines typically price better and scale larger.

What if my clients pay in 45–60 days?
Blend a LOC with invoice/freight factoring to accelerate collections.

Can I refinance later?
Yes—once cash flow stabilizes, consider Business Refinancing to reduce cost.

‍

Want a quick, tailored number? Run a scenario in the calculator and feel free to contact our credit analysts via Contact Us. Explore industry specifics here: Industries.