A line of credit refers to a revolving credit line that provides businesses with an option to borrow funds when needed, repay over time and borrow again.

A line of credit is instrumental when you need instant cash and don’t want to go through the hassles of applying for a traditional loan.

Most lenders extend a collateral-free line of credit. So if you’re uncomfortable with the idea of putting your possessions on the line to access funds, a line of credit could be the solution you’re looking for.

Here are a few instances when getting a line of credit can be beneficial for your small business:

1. You are not sure how much money you need for your business

Running a small business involves several unforeseen expenditures. Predicting the exact amount you need with mathematical precision is a challenge many business owners face.

When you apply for a business loan, you get a lump sum amount based on an estimate of what you think you need for your business. If your guess is too low, you will need to arrange for extra funds. This can get tedious and cost a pretty penny. But if you guess too high, you will find yourself paying interest on amounts you didn’t even need to borrow.  Moreover, the obligation to repay the interest on the entire amount of the loan kicks in right away.

With a line of credit, you borrow what you need and only pay interest on the funds you borrow and use, saving a lot of money in the process. And if the fund is not enough, you can always borrow again.

2. You want to fix cash flow issues

One of the biggest challenges for small businesses is maintaining regular cash flow. However, outstanding receivables make it difficult to manage payments on time.

A line of credit can quickly iron out such issues and help you make all payments on time. It is beneficial when your business is in a lean phase, and the cash influx is not as expected. You can keep borrowing from the line of credit during such times and repay it once you have sufficient cash inflow.

3. You want to improve business adaptability

Unlike traditional business loans, a line of credit is not sanctioned for a specific purpose. You can use it as you may deem fit.

This flexibility can help small business owners take advantage of unforeseen opportunities. For instance, you get invited to participate in a prestigious trade event and need to purchase raw materials in bulk to scale up your production. You may not have sufficient cash to pay for the expenses, but with a line of credit, nothing can hold you back from ramping up manufacturing and showcasing your potential.

4. You want to build a solid credit history

When you apply for a traditional business loan, lenders often look at your business’s credit history to assess your creditworthiness. A higher credit score translates into a cheaper interest rate and more favourable terms.

Getting a line of credit can play a crucial role in improving your credit score. Unlike a loan, you can keep borrowing small amounts at regular intervals and pay interest only on the borrowed amounts. Regular repayments will ensure a high credit score, making you a desirable applicant for lenders and improving your chances of getting approved for higher credit limits in future.

5. You require financing for your inventory

Whether you want to expand product lines, meet seasonal demands, or reorder popular inventory, a line of credit is a great option. It provides you access to working capital to meet the operating expenses of your business.

Take, for example, your small business that sells beach accessories for women. Monsoons are usually a lean phase, and you are intentionally maintaining lower inventory levels. However, you know that you have to ramp up production to have the best selection of products to attract shoppers who are planning for a summer beach vacation. You need to purchase raw materials in bulk, but your supplier refuses to extend credit since your cash flow is tight.

In such a scenario, having access to a line of credit can get cash flowing in your business and help you place large purchase orders. You won’t have to get hassled over cutting costs from other areas of your business to fund inventory purchases.

6. You don’t want to go through a rigorous loan approval process

Borrowing traditional loans involves a lot of work. Most lenders will look for a high credit score and the collateral you can offer to assess whether you are a suitable loan applicant.

Since getting a line of credit doesn’t usually require collateral or a near-perfect credit score, it is an excellent alternative to explore.

Enjoy the convenience of an unsecured line of credit with Razorpay Line of Credit

In today’s fast-paced world, keeping up with the demands of your small business requires instant access to liquidity. A line of credit is a convenient solution to help you achieve your goals for growth.

Razorpay Line of Credit ensures that such businesses don’t suffer due to their unplanned cash requirements. Here are the key benefits you can enjoy when you get Line of Credit:

  • Withdrawing instantly without making new applications each time
  • Paying interest only on the amount withdrawn
  • Repaying automatically through daily settlements and borrowing again when you need funds
  • Zero processing fee and annual fee

Based on your previous customer transactions, you can even get pre-approved by Razorpay’s credit decisioning system to borrow Line of Credit. So don’t let cash flow issues hold back the growth of your small business. Borrow using Line of Credit and grow your business quickly.



Ashmita Roy is an Assistant Marketing Manager at Razorpay. When she’s not working, you can find her strumming her guitar or writing poetry. Dislikes writing about herself in third person, but can be convinced to do so via pizza or cheesecakes.

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