By early July, most owners already know what kind of summer they are having. The deposits tell you. Somewhere behind that is a number you keep in your head: the gap between what June brought in and what August is going to cost.
The product built for that gap is the line of credit. It is also the product I spend the most time explaining at the desk, because most owners apply for one before they understand how it charges.
The mechanics, plainly
A line of credit is an approved limit, not a lump of money. Say the limit is $60,000. Nothing moves on day one, and nothing accrues. When you need $15,000 for an inventory buy, you draw $15,000. Interest starts that day, on that balance, and on nothing else.
Pay the draw back in eight weeks and the clock stops. The capacity comes back, and the line sits at $60,000 again, waiting. That is the word revolving. You are not reapplying each time. The limit is the product. The draws are just you using it.
Run the math on that draw. At 14 percent annual, an example rate for the sake of arithmetic, $15,000 out for 56 days costs about $320 in interest. The same $15,000 left drawn for a full year costs about $2,100. A line rewards the owner who treats it like a bridge and punishes the one who treats it like a permanent loan. That is the whole personality of the product.
What it costs when you are not using it
Interest is the visible cost. The fee schedule is the quiet one, and it varies between lines far more than the rate does.
Some lines charge a fee on each draw, a percentage taken when the money moves. Some charge a monthly or annual fee to keep the line open whether you touch it or not. Some cost nothing until you draw. None of this is hidden. It lives on one page of the agreement, and I have still watched plenty of owners learn their draw fee on the morning of their first draw.
Read the fee page before the signature page.
Where the limit comes from
Underwriting sets the limit off your deposit history, your time in business, and your credit file, roughly in that order. I went deeper on the credit piece in what credit score you need for business funding, but the short version is that the bank statements usually outvote the score.
The first limit is usually smaller than the ask. That is normal, and it is not a judgment. A file that runs six clean months on a $30,000 line becomes a file that supports $75,000. Lenders raise limits for owners they have watched repay. They rarely start there.
One more thing worth knowing before you build plans around a limit: a limit is not a promise. Most agreements let the lender reduce or pause the line if deposits slide or the file goes stale. The capacity is real, and it is also conditional. Owners who treat the full limit as cash already in the bank get surprised at the worst possible moment.
A line against an advance
The question I hear most is some version of: should this be a line or an advance. They solve different shapes of need, and the shape matters more than the pricing.
An advance is one number out, one defined payback, funded fast. It fits a single move with a known return: a buildout, a bulk buy, a contract you have to staff before it pays. I walked through the speed side in how long an advance takes to fund. You take the full amount on day one whether you need all of it that week or not, and the cost is fixed when you sign.
A line fits the need that repeats. Payroll that lands before the receivable does. Inventory you buy four times a year. The gap is never huge and never gone. Drawing $12,000 six times a year and clearing it each cycle will usually cost less on a line than funding each gap as its own event.
If the need is one project with a clear payback, I lean advance, mostly for speed and certainty. If the need has a rhythm to it, I lean line. Which brings up the real catch.
The week you need it
Lines are underwritten on strength. Steady deposits, aged file, clean months. So the easiest day to get approved is a day you do not especially need the money, and the hardest day is the day you do.
Back up eight or ten weeks from your tight season and that is the window to apply. Not a trick, just timing. Underwriting reads your best months instead of your thinnest ones, and the limit reflects what it read.
An advance is money. A line is permission, priced by the day you actually use it. The owners who get the most from one opened it early and paid it back boring. Even if the timing isn’t right for you this season, it is worth knowing which shape your gap is before the gap shows up.