Business line of credit: How does it work?

When running a business, managing cash flow is everything. Whether it’s covering a short-term gap between invoices, purchasing stock, or funding a marketing push, access to fast, flexible finance can make a world of difference.

One solution growing in popularity is a business line of credit - a dynamic funding option that offers more flexibility than a traditional business loan.

In this post, we’ll break down what a business line of credit is, how it works, and why it could be a smart move for your business.

What is a business line of credit?

A business line of credit is typically a type of revolving finance that allows businesses to access a set amount of money - known as a credit limit - and draw funds as needed.

Unlike a term loan where you receive a lump sum upfront and repay it over time, a line of credit works more like a business credit card:

• You only borrow what you need

• You only pay interest or fees on the amount borrowed

• You can repay and reuse the funds, as long as you stay within your limit  

It’s ideal for managing short-term expenses, smoothing out cash flow, or seizing growth opportunities without taking on unnecessary debt.

Business lines of credit can either be secured or unsecured, however unsecured lines tend to have higher fees and lower credit limits. 

Like with a secured loan, a secured credit line requires a personal guarantee that uses your assets as collateral against the finance. 

How does a business line of credit work?

Let’s say you’re approved for a £50,000 business line of credit.

• You don’t receive the full £50,000 upfront - instead, the funds are made available to draw from as and when you need them.

• If you draw £10,000, you only pay interest or a fee on that amount.

• Once you repay the £10,000 (plus interest), it becomes available to draw again -just like refilling a tank.

• Normally your credit line will be for a defined period of time, between one-12 months for instance.

This ongoing access makes a line of credit more flexible than a traditional loan, especially for businesses with variable income or expenses.

Key features of a business line of credit

Here’s what typically defines a business line of credit:

What can you use it for?

Business lines of credit are designed for working capital needs, including:

To bridge cash flow gaps

Running a business often means waiting weeks or even months to be paid. A line of credit helps you stay on top of your obligations - like rent, bills, and supplier payments - while waiting for revenue to come in. It can be especially useful in industries like construction and logistics with long payment cycles or seasonal dips in income.

Purchase inventory or supplies

A business line of credit can be perfect for inventory financing. Need to restock before peak trading periods? Want to take advantage of a bulk-buy discount from a supplier? This type of finance allows you to move quickly when opportunities arise - without tying up cash.

Cover payroll and staffing costs

Hiring new team members or covering temporary staff and sub-contractors during busy periods can strain cash reserves. A line of credit ensures you can meet payroll on time and invest in people when your business needs extra support.

Invest in marketing and growth

Growth often requires upfront investment - whether it’s launching a new campaign, testing ads, or hiring a freelance team. With a credit line, you can fund these initiatives and reap the return over time, without disrupting your operating cash.

Fund seasonal demand

Retailers, hospitality businesses, and service providers often have busy and quiet times during the year. A business line of credit can help you prepare for busy periods - like buying extra stock or hiring staff - and also support you during slower months when less money is coming in.

Because of the quick access and reusable nature of the facility, many businesses use it proactively rather than reactively - not just as a safety net, but as a tool for growth.

Read more on how 3 Lenkie customers used their credit lines to supercharge revenue

Benefits of a business line of credit

Flexibility – Draw only what you need, when you need it

Unlike a traditional loan where you receive a lump sum, a line of credit gives you access to a set amount of funds that you can use at any time. You’re not locked into borrowing the full amount, which means you can dip in and out as your needs change - whether it’s covering a short-term cash gap, stocking up on inventory, or funding a small project.

Control – Borrow and repay on your terms

You’re in charge of how and when you use the funds. Repay what you borrow as it suits your cash flow, and once it’s repaid, the funds become available again. This revolving structure gives you breathing room to manage your finances without the pressure of fixed monthly repayments tied to a lump-sum loan.

Efficiency – Avoid taking on more debt than necessary

Because you only borrow what you need, you avoid unnecessary interest payments. This makes a line of credit a more cost-effective solution than larger, one-time loans that may leave you with unused capital and higher repayment obligations.

Speed – Faster to access than many traditional business loans

Approval and funding times for lines of credit are often quicker than for standard business loans. Once approved, you can typically access funds within hours or days - which is especially useful when you need to act fast, like restocking bestsellers or handling unexpected expenses.

Growth-ready – Ideal for capitalising on new opportunities

Whether you want to launch a marketing campaign, trial a new product, or respond to a sudden spike in demand, having fast access to capital allows you to act decisively. A line of credit provides the confidence to invest in growth without waiting for cash flow to catch up.

What type of business is it best for?

A business line of credit can suit a wide range of businesses - from retailers to service providers, e-commerce sellers to trades. It’s especially useful if:

• Your income varies month to month

• You manage inventory or upfront supplier payments

• You have recurring expenses but unpredictable timelines

• You want to be prepared for unplanned costs or fast opportunities

It’s important to note that most providers will look at your revenue, trading history, and business credit score when assessing eligibility.

How to successfully apply for a business line of credit

Applying for a business line of credit is usually simpler and quicker than a traditional loan - especially through alternative lenders.

At Lenkie, you can get an instant pre-qualified offer and funds within a couple of days.

Here’s how it typically works:

1. Apply online – Create a free account with some basic information to see your funding limit

2. Add some key documents – You’ll need to provide your latest management accounts, filed accounts and bank statements

3. Your application will be reviewed – You’ll receive confirmation within 48 hours and be given a credit limit you can draw from

4. Draw funds when needed – Upload your first invoice to pay your suppliers instantly

5. Repay and reuse – As you repay, funds become available again

Things to consider

Before applying, think about:

• Your actual funding needs - how much, and how often?

• Repayment discipline - can you repay regularly to keep credit available?

• Cost - always factor in any fees to work out the total cost of borrowing and if your margin can justify it.

• Provider reputation - make sure the lender is transparent and trustworthy

FAQs about a business line of credit

How is it different from a traditional loan?

With a loan, you receive a lump sum upfront and repay it over time with interest. A line of credit, on the other hand, gives you ongoing access to funds that you can draw from as needed. You only pay interest on the amount you use, and it “revolves” as you repay it.

Who is eligible for a business line of credit?

Eligibility depends on factors like your business revenue, trading history, credit profile, and overall financial health. Some providers work with newer businesses, while others require at least 6–12 months of trading.

How quickly can I access funds?

Many providers offer quick decisions - often within 24–48 hours - and you can usually draw down funds the same day you're approved.

Do I pay interest even if I don’t use it?

No. You only pay fees on the amount you draw. If you don’t use the credit, you don’t pay anything. Some providers may charge a small monthly fee for access, but many don’t.

Will this affect my credit score?

Applying may result in a soft or hard credit check depending on the provider. Using your line of credit responsibly - borrowing and repaying on time - can actually help strengthen your business credit profile.

Can I use it alongside other finance?

Yes, many businesses use a line of credit in addition to other funding like term loans, invoice finance, or asset-based lending. It works well as a flexible top-up for day-to-day needs.

Final thoughts

A business line of credit isn’t just a safety net - it’s a strategic financial tool. For many UK businesses, it offers the breathing room and flexibility needed to handle everyday challenges and unlock new growth.

If you’re looking for a smart way to manage cash flow, respond to opportunities quickly, and stay agile - a business line of credit could be the solution.

We could help you access a facility of up to £1m in just 48 hours. Create a free account to get a pre-qualified limit in just 2 minutes with a few quick details.