Business Line of Credit Guide

What is a business line of credit?

A line of credit is an arrangement where a provider makes a defined amount of capital available to the business on an ongoing basis. The business draws what it needs, repays as cash comes in, and the repaid capacity becomes available to draw again — a revolving structure, conceptually like the operating line many Canadian businesses know from their bank.

The essential value is timing insurance: the gap between paying and collecting does not schedule itself, and a line means the business does not have to arrange capital each time the gap opens.

How do draws and repayments work?

The business draws when the need appears — covering a payroll run, buying stock ahead of a season, bridging a customer's slow payment. Repayment happens as revenue returns, structured by the arrangement's terms. Costs typically apply to the drawn balance, not to the unused limit — meaning the structure is quiet when the business is flush and working when it is tight.

That rhythm is exactly why lines fit operating needs: the gap opens and closes on the business's cash cycle, and the structure moves with it.

What is a business line of credit used for?

The recurring, shifting needs of operating a business:

• Payroll through slow collections or seasonal dips
• Supplier payments to protect terms or capture discounts
• Inventory purchased ahead of sales
• Unexpected expenses — repairs, replacements, surprises
• Bridging between invoicing and payment on B2B work
• Short windows of opportunity that need quick cash

How is a line of credit different from a term loan?

A term loan is a fixed amount advanced once and repaid on a defined schedule — built for a known one-time need. A line is standing capacity, drawn and repaid repeatedly — built for recurring needs. The Business Loan vs Line of Credit comparison covers this in table form; the short version is that the need's shape (one-time or repeating) is the deciding question.

How is a line of credit different from factoring?

A line is a borrowing relationship evaluated around the business profile, with collections staying in the business's hands. Factoring is a sale of eligible invoices, evaluated largely around the customers who owe them, with the factor typically collecting. When the gap is made specifically of B2B invoices, factoring's availability scales with invoicing; when the gap is broader operating rhythm, a line is the more natural fit. The Invoice Factoring vs Line of Credit comparison lays this out side by side.

Why do limits and availability vary?

Because a line is a standing commitment to the business, providers evaluate it as one: the business's revenue, its rhythm, its time in operation, its obligations and its profile all inform what capacity makes sense — and different providers weigh these differently. Limits are not published universals; they are the output of an actual review. Businesses with a recurring, documentable gap and clean history present a stronger line conversation.