A business line of credit is a flexible loan that businesses can acquire from banks or financial institutions. These loans give business owners the ability to access funds when needed and repay over time.

You pay interest only on the portion of money borrowed for credit lines, irrespective of the sanctioned limit. This is unlike a traditional small business loan where you pay interest on the whole amount disbursed in a lump sum.

When you own a business, a business line of credit can help you tackle several short-term funding requirements, such as maintaining inventory, salary payments or addressing new orders. Also, having access to a business line of credit can help you control your cash flow throughout the year.

Top 10 Benefits of a Business Line of Credit

There are several reasons why your company can benefit from a business line of credit.

1. Flexibility
The most significant advantage of a business line of credit is flexibility, which means you can access cash at frequent intervals, repay them and borrow repeatedly. A business line of credit makes funds available whenever you need them, with a flexible repayment structure.

2. Control
You can use a business line of credit however and whenever you see fit; to cover gaps in cash flow, for ongoing operating costs or tackle unforeseen challenges.

3. Approval
A global study by BLinC Invest found that around 40% of small enterprises’ financial needs go unfulfilled. In India, the credit gap for this sector is estimated to be around Rs. 25 trillion. However, a business line of credit does not require any security, making it easier for these companies to obtain funding without added stress.

4. Business credit
By availing a business line of credit, you can maintain a good credit score. However, make sure that you continue to make your payments on time and keep a low account balance, and you will likely see your credit score go up. Also, you have the advantage of boosting your businesses’ creditworthiness in the eyes of lenders.

5. Cash outflows

A business line of credit comes in handy when there are frequent cash outflows, and it is difficult to determine the exact need for funds in advance.

6. Business growth
In this challenging and highly competitive environment, a business must adapt to dynamic business needs. A business line of credit keeps your business cash flows smooth. It promotes growth by meeting the changing demands of the market and catering to unforeseen opportunities.

7. Interest rate
Financial institutions offer a significantly lower interest rate for a business line of credit. Furthermore, the borrower only pays interest on the amount borrowed from the total credit limit, reducing the total cost of repayment to the lender significantly.

8. Terms & conditions
Keeping the concerns of businesses at the forefront, some lenders provide adaptable terms and conditions when sanctioning a new line of credit. For instance, Razorpay, one of the leading payment solution-providing platforms in India, charges zero processing and foreclosure fees to its borrowers.

9. Business cycle
A business goes through growth and contraction cycles due to its basic operation, but without enough liquidity, expenses may exceed income. This makes it difficult to keep the business running. In such a situation, obtaining a business line of credit can provide a vital source of funding and help keep the business afloat.

10. Borrowing limit
Based on specific parameters, the leading financial institutions of India sanction a business line of credit with a notably higher ceiling of the credit limit. For instance, Razorpay provides up to Rs. 25 Lakhs of credit limit.


How does a business line of credit differ from traditional business loans?

Traditional business loans provide funds in one shot at the time of obtaining the loan. Here, the interest is applicable on the whole amount of loan disbursed irrespective of the usage of such funds.

However, under a business credit line, interest is applicable only on the borrowed amount and not the entire approved limit. So, you need to pay interest according to your business’s funding needs.

Another parameter for the difference is, loan structure and repayment terms!

Business loans are borrowed for a specific term, say three or four years – or even longer, in some cases. They are repaid in equal monthly instalments – consisting of principal and interest for the entire tenure of the loan.

A business line of credit works differently. In this case, the lender provides a credit limit to the borrower and allows him to utilise the limit for a predetermined length of period. Like a credit card, the borrower can use the amount for making purchases and repay them after a particular period. And, then again use the credit limit over and over again to make other purchases or payments. This provides long-term flexibility to businesses as compared to a loan.

Things to consider while using a business line of credit

Here are the key things to keep in mind when you opt for business credit lines.

  • It is best to use business credit lines with long-term loans. This way, both your short-term and long-term financial requirements will be met
  • You must always pay the debt on time to maintain a good credit history
  • Do not excessively rely on credit lines as it may land you in trouble of getting overburdened with debt

Razorpay Line of Credit

Razorpay, the only converged payment solution provider in India, has emerged as a game changer in the fintech market. With its end-to-end digitised facilities, this platform has made it easier for small businesses to opt for alternative means of capital generation.

Razorpay can be highly effective for enterprises considering applying for an MSME loan. For instance, with its business Line of Credit facility, your business can receive a total sanctioned credit amount of up to Rs. 25 lakhs, with a credit line from which you can withdraw 24*7 as per your need. You can repay & reuse the line again.

Why should you go Razorpay for Line of Credit?

  • Line set up in just 2 business days with 24*7 cash withdrawals
  • No collateral. No hidden charges. No pre closure fees
  • Interest rates starting at 1.5% per month: Pay only on what you use & save on interest by repaying early. For example: If you withdraw Rs. 1 lakh at 1.5% and repay in 20 days, you pay only Rs. 1000 as interest.
  • You also get 100% flexibility. You can repay in easy EMIs or manually from Line of credit dashboard; use your line again without a new application for every withdrawal.

Don’t run out of cash and don’t stop growing!


Ashmita Roy is a Content Marketer 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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