Business Credit Lines

Running a business – under any circumstances – is an exercise in cash flow management. But for those companies that need help with day-to-day working capital, financing for a new venture, or funds to cover unexpected costs, sourcing a convenient and reliable loan is critical. While there are many different types of business funding out there, commercial or business credit lines are among the most useful as they provide a flexible and affordable form of financing.

Below we have compiled a list of some of Canada’s most reputable business lenders, so you can compare their credit line offerings. Click on any of the company names to learn more about them, and read on to learn everything you need to know about credit lines.

We can help connect you with the top business credit line providers in Canada.

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Top Business Credit Lines Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$5000 - $500,000
Starting at 12.99%
6 - 18 Months
$4,000 - $300,000
5.49% - 22.79%
6 - 60 Months
$5,000 - $100,000
Starting at 29%
4 - 6 months
$5,000 - $100,000
Starting at 6.87%
3 - 18 Months
$5,000 - $300,000
Starting at 8.39%
6 - 12 Months

What is a Business Line of Credit?


A business line of credit is sort of like a credit card for your business; you apply for a line of credit and are approved up to a certain limit. You can then access the line of credit as and when you need to, and you only pay interest on what you actually borrow. So if you’re approved up to $100,000, but only borrow $60,000 overall, you only pay interest on the $60,000. This makes lines of credit a flexible and practical approach to business financing.

There are two types of commercial line of credit:

1. Secured – backed by company assets. As lines of credit are short term borrowing mechanisms, the assets used as collateral can also be short term, such as accounts receivable or inventory.

2. Unsecured – no collateral is required, but in order to qualify for this type of credit the company’s credit score must be strong and sometimes a personal guarantee is also needed.

Source data: Statistics Canada, 2019

How Does a Business Line of Credit Work?


A line of credit is a simple tool; essentially, the company applies for a line of credit, and if approved is given access to a set amount of funds which can be accessed as needed. Monthly statements will be sent out detailing how much has been used, how much is left available to borrow, and repayments (amount borrowed so far plus interest). Once an amount is repaid, it can in effect be borrowed again – as with a credit card, if you use it and then pay it off, it effectively resets the bar.

Logistically, smaller lines of credit can be accessed by dedicated cards; some lenders allow required funds to be deposited directly into a company’s bank account. There is usually an annual fee for a line of credit, and some lenders will also charge a transaction fee every time the credit is used. There may also be an opening fee for setting up the line of credit.

What Can I Use a Business Line of Credit For?


There are many uses for a business line of credit, including:

  • Purchasing inventory
  • Repairing equipment
  • Bridging cash flow gaps (e.g. for seasonal businesses)
  • Financing specific campaigns
  • Day-to-day working capital

There are very few restrictions on what a line of credit can be used for though, as long as they are business-related expenses.

How Can I Get a Business Line of Credit?


Getting a business line of credit differs a little from getting a standard business loan. For some lenders, the eligibility requirements will be stricter, as the capital being borrowed is a lot more flexible (and therefore potentially riskier) than with a term loan. Traditional lenders are generally stricter in their requirements than online lenders, with eligibility usually involving:

  • Business owner’s credit score
  • Business’s credit score
  • Business’s age (many lenders require at least two years of business history)
  • Business’s expected revenues

Applying for a line of credit takes some paperwork, so it’s best to gather what you need in advance, to save time. Generally speaking, most lenders will require the following:

  • Government-issued I.D. for the business owner
  • Business owner’s personal notice of assessment or income tax returns for the past two years
  • Standard business structure documents, such as Articles of Incorporation, Certificate of General Partnership, ownership details, etc.
  • Business license or trade name certificate
  • Business financial statements for the past two years
  • Business bank account statements for the past three months

Finding a lender whose eligibility requirements you meet is paramount; although credit score and business history can be a deciding factor in which lenders you can use, those with lower credit scores or new businesses need not give up hope. Many online lenders are more flexible in their approach.

Source data: Statistics Canada, 2018

Line of Credit Versus Business Loan


A business line of credit is a form of debt financing that distinguishes itself from other types of financing by its short term and flexible nature. And unlike a business loan, a line of credit can rely on your business’s prospects – as the credit can be accessed piecemeal and in the future, rather than as a one off and immediately, as with a loan. There is no set term either. This all means the lender is making a bet on the future of your company and its ability to pay back the line of credit. There are more unknowns with a line of credit, making them sometimes a little harder to get (usually when the amounts are large or the business is unestablished).

Source data: Statistics Canada, 2019

Pros and Cons of a Business Line of Credit


As with any type of financing, there are advantages and disadvantages to using a line of credit.

Pros:

  • Can use it anytime
  • Multiple draws can be made on the same credit line
  • Lower borrowing costs than other financing types
  • Can apply in advance and use in the future, ensuring constant and/or quick access to capital

Cons:

  • Lines of credit can become expensive if you allow interest to amount up
  • Approvals process is more comprehensive than some other forms of financing
  • Borrowing limits are generally lower than with term loans
  • Multiple fees can apply

What To Consider When Applying For a Line of Credit


All financial decisions require careful thought, and it’s important not to let the flexible and open-ended nature of lines of credit change your due diligence efforts. When considering a line of credit, answer the following questions:

  • What is the maximum amount I realistically need access to?
  • How much am I able to borrow given my business’s circumstances?
  • How much can I actually afford? Remember to include all fees as well as the interest rate (which may be fixed or variable) in your calculations.
  • Do I have assets that can be used as collateral?

Once you know the above, you will have a clearer idea of what you’re looking for, and then will be better able to compare lenders and their rates to find the best deal for you.

Frequently Asked Questions About Business Credit Lines


What is a business line of credit?

A business line of credit is sort of like a credit card for your business; you apply for a line of credit and are approved up to a certain limit. You can then access the line of credit as and when you need to, and you only pay interest on what you actually borrow.

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

A line of credit differs from a business loan in a few ways. A line of credit is open-ended, so there is no term limit. There is a cap on a line of credit which dictates the maximum amount you can borrow, but you can borrow any amount up to that cap, as and when you need to – as opposed to a business loan, where you receive a set lump sum immediately and then have to pay it back by a certain date.

What are the requirements for a line of credit?

Many traditional lenders, such as banks, will require a solid credit history and comprehensive business information before approving a line of credit. Some lenders have less strict requirements and may be willing to lend to newer businesses that don’t have a history, or to those with lower credit scores, but they may charge higher interest rates to offset these risks.

What do I need to apply for a line of credit?

You need some documents to apply for a line of credit; these vary from lender to lender but usually include standard business documents and financial documents – such as a few years of financial statements, business incorporation information, bank statements, business license, and ownership information.

What’s the cost of a line of credit?

Lines of credit come at a price; primarily this consists of the interest you pay on what you borrow. Interest rates vary lender to lender. There are also usually fees, including transaction fees for each draw on the line of credit, annual fees, and set up fees.

How long does a line of credit last?

Most lines of credit are open-ended and have no set end date. However many lenders include a stipulation in their terms that allows them to cancel the line of credit at their discretion, in case circumstances change.

Why do people use lines of credit?

Lines of credit are popular because they are a convenient and flexible form of financing that can also be quite cost-effective if you stay on top of the interest. They allow for ad hoc borrowing and so can be used in many situations.

What can I use a line of credit for?

Lines of credit can be used for almost any business expense, such as inventory purchasing, equipment repair costs, working capital, financing campaigns and bridging cash flow gaps.

What are the risks of a line of credit?

Lines of credit are sometimes considered risky if they are not used sensibly. It is easier to get carried away when drawing on a line of credit, as it is such a convenient form of ready funds, and so can encourage reckless spending. Interest payments also become expensive if you allow them to build up without paying off the balance.

How much can I borrow with a line of credit?

Lines of credit tend to be smaller than standard business loans; most range from $10,000 to $100,000, although larger amounts are available to more established or profitable businesses.

Written By Smarter Loans Staff


The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada’s highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the “GPS of Fintech Lending” by the Toronto Star in 2019.

Types of Business Credit Lines offered:

  • Revolving Commercial Credit Lines
  • Credit Lines for Small Business
  • Online Business Credit Line

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