How does a business line of credit work?
Draw, repay, draw again — and the questions people forget to ask before signing.
Biscayne Lending 3 blog.minRead
A business loan hands you one amount, once. A line of credit gives you a limit you can draw on, repay, and draw on again. That difference sounds small and decides which one you should be asking for.
The mechanics
You are given a limit — say $100,000. You draw $30,000 to buy stock. You now owe $30,000 and have $70,000 of room left. Two months later the season ends, you repay the $30,000, and the room goes back to $100,000.
You generally pay on what you have drawn, not on the whole limit. That is what makes a line cheap to hold and expensive to live in.
When a line is the right shape
- You wait 30, 60 or 90 days to be paid and need to cover the gap.
- Your business is seasonal: stock goes out in autumn, money comes back in December.
- You buy materials before a job pays.
- You want a cushion in place for the month you cannot predict.
When a loan is the right shape
- A build-out.
- A machine.
- Buying out a partner.
A fixed, one-off cost belongs on fixed, one-off borrowing. A line used that way quietly becomes term debt at a revolving price.
The four questions people forget
1. Is there a fee if I never draw? Some facilities charge for availability whether you use them or not. Ask before signing, not at the first statement.
2. What triggers a review? Lines are usually re-underwritten periodically. A limit that can be reduced is not a limit to build a cash-flow plan around without knowing the conditions.
3. How fast does a draw arrive? Same day and three days are both normal, depending on the lender. If you are covering payroll, it matters.
4. What happens if I sit at the limit? A line drawn to the top every month reads to a lender like term debt in disguise, and it shows up at review.
What lenders look at
| What they check | Why |
|---|---|
| Revenue consistency | A revolving facility is underwritten against a pattern, not a peak |
| Bank account behaviour | Average balances and negative days say how you actually run it |
| Time in business | Lines are usually harder for a new business than equipment financing |
| Existing facilities | What is already open, and how much of it you use |
| Receivables | On some lines, this is the basis of the whole thing |
The timing mistake
The worst month to apply for a line is the month you are short. Lenders underwrite the business as it stands, and a business under pressure is a harder file than the same business was three months earlier.
Arrange it while trading is good. The point of a line is that it is already there.
What would change the answer
Fees, review triggers, draw speed and limits all vary by lender — none of the above is a quote or an offer. If you want to know which shape fits your cash flow, tell us how the money moves through your year.
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