Published Jul 04, 2022

Line of Credit (LOC): Things You Need to Know

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A business line of credit (LOC) is a revolving loan that gives you access to a fixed amount of funds. Within the approved credit limit, you can withdraw money as you need, and pay interests only on the amount borrowed. Once repaid, that amount becomes available for you to use again.

For e-commerce sellers, a business line of credit gives you quick access to funds, which can be used to meet short-term working capital needs such as:

  • Inventory purchase
  • Advertising
  • New hires
  • New product launches

Pros of Business Line of Credit

Advantages Explanation
Flexible borrowing A line of credit works like a credit card, allowing you to borrow against a credit limit from time to time.There is no need to apply for a loan every time you need extra money.
Help build business credit Building good business credit is important in many ways. It increases the chances of your company being approved for loans, getting higher loan amounts, lower interest rates and negotiating better payment terms with suppliers.However, business credit takes time to build. Applying for a business line of credit and making repayments on time is a good way to boost your business credit.

Cons of Business Line of Credit

Disadvantages Explanation
Low borrowing limits In business lines of credits, there is a limit to the maximum amount of funds you can draw. The borrowing limit is usually lower than that in other lending options.
Extra charges and fees In addition to interest, you may be charged other fees on your business line of credit, such as account set-up fees, annual fees, transaction fees, late payment fees, etc.
Complicated application procedures To apply for a business line of credit, there is a lot of documentation to submit. It could take weeks or months to prepare all of your company’s historical financial statements, tax returns, business planning reports, etc.

Regular reviews may also be conducted to continually assess your eligibility for a business line of credit.
Long turnaround time The approval process could take months.
Difficult to qualify Your company must be in business for a certain period of time (e.g. 2 years or more) in order to be eligible for a business line of credit.