Business Line of Credit Explained
When working with business line of credit, a flexible revolving credit facility that lets businesses draw funds as needed up to a preset limit. Also known as BLOC, it helps companies smooth cash flow, cover unexpected expenses, and seize growth opportunities without the rigidity of a term loan.
One close cousin of a BLOC is the working capital loan, a short‑term loan designed specifically to fund day‑to‑day operations such as inventory purchase or payroll. While both provide liquidity, a working capital loan usually comes with a fixed repayment schedule, whereas a line of credit lets you borrow, repay, and borrow again, much like a credit card for your business.
Access to a BLOC heavily depends on your credit score, a numerical representation of your creditworthiness based on payment history, outstanding debt, and credit mix. Lenders use this score to set the credit limit, interest rate, and approval timeline. A higher score can unlock larger limits and lower rates, making the line more affordable and useful for managing fluctuations in revenue.
In the Indian context, SME financing, the suite of financial products aimed at small and medium enterprises, often includes business lines of credit as a core offering. Together with other tools like invoice discounting and asset‑based lending, a BLOC forms a crucial part of an SME's financial toolbox, enabling smoother operations and faster response to market changes. Interest rates on these lines can be floating or fixed, and they are typically tied to benchmark rates such as the RBI repo rate, plus a spread that reflects the lender’s risk assessment.
Understanding how a business line of credit fits into cash‑flow management, credit health, and overall financing strategy equips you to choose the right product for your needs. Below, you’ll find a curated set of articles that break down eligibility criteria, cost considerations, and real‑world tips for Indian entrepreneurs looking to leverage a BLOC effectively.
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