How a business line of credit actually works

A business line of credit is an approved maximum you can draw against, rather than a single payment deposited at closing. If you are approved for a $100,000 line, you have access to up to $100,000 — not an obligation to use it.

That difference matters for how the facility fits a business. A term loan gives you all of the money once and a fixed schedule to repay it. A line gives you access when needs appear, and the cost attaches to what you actually use.

A draw is a transfer of funds from your available credit into your account. How draws are requested — online, by transfer, by card — depends on the specific facility, and so does the minimum or maximum size of any single draw.

Repayment works the same way: the schedule, the payment amount, and the way interest is calculated are all set by the terms you are approved under. Those terms are disclosed before you sign, and they are the authoritative answer for your facility.

Lines are commonly described as revolving, meaning that as you repay principal, available credit can be restored up to the limit. It is the feature that separates a line from an installment loan in everyday use.

But revolving behavior is a term of the facility, not a universal guarantee. Whether credit replenishes, and under what conditions, should be confirmed in your agreement rather than assumed from the general category.

Lines tend to fit recurring or unpredictable needs: inventory cycles, payroll timing, receivables gaps, seasonal expenses. They tend to fit poorly when the need is a single, permanent purchase with a defined useful life, where a term loan's fixed schedule can be simpler to manage.