YOUR COMPANY IS LOOKING FOR A BUSINESS CREDIT LINE!
CHOICES IN BUSINESS LINES OF CREDIT
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Phone = 416 319 5769
Fuel Your Business Ambitions: How a Business Credit Line Can Transform Your Company
Table of Contents
Introduction
Types of Business Lines of Credit
How to Use a Business Line of Credit
Assets Financed Through a Credit Line
Revolving Credit Is Short-Term Financing
Term Loans Are for Long-Term Assets
Two Primary Choices for a Business Credit Line
Why Non-Bank Financing Has Grown
Key Characteristics of Bank Credit Facilities
Bank Credit Lines vs. Asset-Based Lending
Are There Downsides to Non-Bank Credit Lines?
Cost of Capital vs. Access to Capital
Line of Credit vs. Term Loan
Conclusion: Strengthen Cash Flow With a Business Credit Line
Frequently Asked Questions
The Working Capital Trap That's Costing You Growth
You're profitable on paper, but your bank account tells a different story. Bills arrive before customer payments, opportunities slip away because you can't move fast enough, and traditional banks want collateral you don't have.
Let the 7 Park Avenue Financial team show you how a business credit line solves this timing problem by giving you instant access to funds in your business checking account, exactly when you need them, without the endless paperwork and rejections on credit approval that come with begging for another term loan.
3 Uncommon Takes on Business Credit Lines
The best time to secure a business credit line is when you don't desperately need one—lenders view your application completely differently when you're proactive rather than panicked, often resulting in better terms and higher limits.
Most businesses underutilize their credit lines by treating them like emergency funds—the real power comes from strategic deployment for revenue-generating activities, then paying down quickly to recycle the capacity.
Your existing bank isn't always your best credit line source—alternative lenders often approve faster, require less documentation, and understand business realities that traditional banks ignore, especially for companies with less than three years in operation.
Introduction
A business credit line is one of the most flexible financing tools available to Canadian businesses.
It provides on-demand access to capital to manage cash flow, fund short-term expenses, and support growth.
Rather than asking, “What are our chances?”, business owners should be asking, “What are our choices?”.
Understanding how business lines of credit work—and how they differ from term loans—helps companies choose the right financing structure. This includes understanding the types of credit lines, their advantages and limitations, and when each option makes sense.
Types of Business Lines of Credit
There are two primary types of business credit lines in Canada:
Secured business lines of credit
These facilities require collateral, typically accounts receivable and inventory. Asset-based lenders may also include equipment and other fixed assets to increase borrowing capacity. The lender takes a security interest in these assets to support a revolving credit facility.
Unsecured business lines of credit
These facilities are usually offered by banks and credit unions. They are supported by a General Security Agreement (GSA), which places a blanket lien on the business rather than specific assets. Personal guarantees are typically required, and strong personal credit and financial statements are essential.
Unsecured credit lines often carry the lowest interest rates available. However, approval standards are strict, and borrowing limits are usually capped.
How to Use a Business Line of Credit
A business line of credit is ideal for short-term funding needs. Common use cases include:
Managing seasonal or cyclical cash flow gaps
Financing short-term sales growth and marketing campaigns
Covering overhead during off-season periods for seasonal businesses
Managing unexpected expenses, including payroll timing issues
Supporting growth initiatives without long-term capital commitments
Used correctly, a credit line smooths cash flow while preserving liquidity.
Assets Financed Through a Credit Line
Business credit lines are primarily tied to current assets. These typically include:
Accounts receivable
Inventory
Tax credits and government small business loan / government incentives resources
Equipment and, in some cases, real estate
Revolving credit facilities monetize existing assets rather than relying solely on historical profitability. This makes them valuable tools for both growing and established businesses.
Revolving Credit Is Short-Term Financin g
Business lines of credit are designed for short-term borrowing. They fluctuate based on receivables, inventory levels, and cash inflows. Unlike term loans, they do not amortize to zero over a fixed period.
As long as the business maintains eligible assets, the facility for the small business line remains available. This makes revolving credit ideal for working capital needs.
Term Loans Are for Long-Term Assets
Term loans should be matched to the useful life of the asset being financed. For example, technology equipment is often financed over three years, aligning repayment with expected obsolescence. This structure avoids overextending credit on depreciating assets.
Lines of credit and term loans serve different purposes and should be used accordingly.
Two Primary Choices for a Business Credit Line
Canadian businesses typically choose between two revolving credit solutions: Secured and unsecured lines of credit
A Canadian chartered bank revolving business line of credit - interest paid only on outstanding balance - defined credit limit
A non-bank asset-based lending (ABL) credit facility - interest paid only on outstanding balances
Each option offers distinct advantages depending on the company’s financial profile and growth stage.
Why Non-Bank Financing Has Grown
Non-bank financing was once viewed as a last resort. That perception changed significantly after the 2008 financial crisis. Since then, asset-based lending has become a mainstream and cost-effective solution for many Canadian businesses.
ABL credit lines focus on asset values rather than rigid financial ratios. This makes them well-suited to growing companies and those experiencing rapid change.
Key Characteristics of Bank Credit Facilities
Bank business credit lines are typically covenant-based. Borrowers must meet specific ratios related to cash flow, leverage, and net worth. Even profitable, growing businesses may struggle to meet these requirements.
Failure to comply with covenants can result in reduced limits or revoked facilities. This can constrain growth during periods of expansion.
Bank Credit Lines Versus Asset-Based Lending
Key differences include:
Bank credit lines
Typically advance against accounts receivable only
Limits are capped
Pricing is tied to prime rates
Approval is slower and ratio-driven
Asset-based credit lines
Advance against receivables, inventory, equipment, and other assets
Grow automatically as sales and assets increase
Focus on asset quality and turnover
Faster approval timelines
ABL facilities offer greater flexibility and scalability for growing businesses.
Are There Downsides to Non-Bank Credit Lines?
The most common concern is cost. Interest rates on ABL facilities are typically higher than bank rates. However, the benefits often outweigh this difference.
Key advantages include:
No reliance on outside collateral
Higher borrowing capacity
No fixed credit cap
Emphasis on assets and sales rather than owner credit
One potential drawback is increased reporting requirements. In practice, this often improves financial discipline and management visibility.
Cost of Capital Versus Access to Capital
A business only pays interest on the portion of the credit line it uses. Balances rise and fall with operating cycles. This makes credit lines more efficient than merchant advances or business credit cards.
When bank financing is unavailable, asset-based credit lines provide a viable and scalable alternative. Many businesses later transition back to bank facilities as they become more “bankable.”
Line of Credit Versus Term Loan
These are fundamentally different financing tools:
Term loans provide a lump sum with fixed repayment schedules and defined maturity dates.
Business lines of credit are revolving facilities with interest charged only on funds drawn.
Lines of credit are best suited for working capital and cash flow management. Term loans are better suited for long-term investments.
Case Study: How a Business Credit Line Fueled Growth
Client: ABC Manufacturing Ltd.
Industry: Industrial Equipment Manufacturing – Learn more about business credit facility agreements and revolving loans.
The Challenge
A major customer extended payment terms to 60 days, creating a $180,000 cash flow gap. The company’s bank declined additional credit due to leverage limits, putting payroll, suppliers, and a time-sensitive contract at risk.
The Solution
7 Park Avenue Financial structured a $250,000 secured business credit line against accounts receivable and inventory. The revolving facility allowed ABC to draw funds only when needed and repay as invoices cleared.
The Results
Cash flow stabilized within 90 days
$320,000 new contract secured
$1.2 million in additional revenue generated
Borrowing costs under $18,000
Credit line later expanded to $400,000 to support growth
Why It Matters
Understanding asset based lending and business lines of credit is crucial for companies seeking flexible and increased borrowing capacity.
ABC didn’t need more debt. They needed flexible access to capital that grew with their business.
Bottom Line
A properly structured business credit line can turn cash flow pressure into a growth advantage.
�� Talk to 7 Park Avenue Financial to explore the right business credit line for your company.
Key Takeaways
A business credit line provides flexible, revolving access to working capital via the business bank account
Secured and unsecured credit lines serve different business profiles
Bank credit lines are low-cost but covenant-heavy and capped
Asset-based lines scale with sales and assets
Credit lines are best for short-term cash flow needs, not long-term assets
Businesses only pay interest on funds actually used
Many companies transition from ABL back to bank financing over time
Conclusion: Strengthen Cash Flow With a Business Credit Line
A business credit line provides flexibility, liquidity, and control over cash flow. Choosing the right structure depends on asset quality, growth plans, and financial objectives.
Bottom line: Canadian business owners have choices.
Call 7 Park Avenue Financial, a trusted and experienced business financing advisor with a proven track record in business loans.
Our team helps companies secure the right business credit line to support growth and stability.
Frequently Asked Questions / FAQ
What is a business credit line?
A business credit line is a revolving financing facility that allows a company to borrow up to a set limit as needed. Funds can be repaid and reborrowed without reapplying. Interest is charged only on the amount used.
Unsecured lines are typically offered by banks to established businesses. Secured lines are often provided by asset-based lenders and supported by business assets.
How long must a business operate to qualify?
Most banks require at least two years of operating history. This demonstrates stability and consistent financial performance. Asset-based lenders may consider newer businesses if asset quality supports the facility.
Is personal credit checked?
Yes. Banks place significant emphasis on the owner’s personal credit and net worth. Asset-based lenders focus primarily on business assets and sales, with less reliance on personal credit history.
Does a business credit line affect credit scores?
Yes. Responsible use, timely payments, and balanced utilization can improve credit profiles. Late payments or excessive balances can negatively impact both business and personal credit scores. Most institutions prefer minimum credit scores of approximately 650.
Statistics on Business Credit Lines
Approximately 67% of small Canadian businesses rely on some form of credit line or revolving credit facility for working capital management (Canadian Federation of Independent Business)
The average business credit line in Canada ranges from $75,000 to $150,000 for small to medium enterprises (Industry Canada)
Businesses using credit lines report 23% better cash flow management compared to those relying solely on term loans (Canadian Bankers Association)
Alternative lenders approve business credit line applications 3-5 times faster than traditional banks, with average timelines of 3-5 days versus 3-6 weeks (Alternative Lender Industry Report)
Nearly 40% of Canadian small businesses have been declined for credit line applications by traditional banks in the past two years (BDC Small Business Survey)
Citations
Canadian Federation of Independent Business. "Small Business Credit Conditions Survey." CFIB Research, 2024. https://www.cfib-fcei.ca
Medium/Stan Prokop/ 7 Park Avenue Financial ."Business Lines of Credit Canada: The Ultimate Cash Flow Solution" . https://medium.com/@stanprokop/business-lines-of-credit-canada-the-ultimate-cash-flow-solution-5b79b773aaee
Industry Canada. "Financing Small and Medium Enterprises: The Canadian Creditor Insurance Market." Government of Canada Publications, 2023. https://www.ic.gc.ca
Canadian Bankers Association. "SME Banking Report: Credit and Lending Trends." CBA Industry Analysis, 2024. https://cba.ca
Substack/Prokop."Comparing Business Credit Lines: Which One's Right for You?" . https://stanprokop.substack.com/p/comparing-business-credit-lines-which
Business Development Bank of Canada. "Financing Solutions for Canadian Entrepreneurs." BDC Knowledge Bureau, 2024. https://www.bdc.ca
Linkedin ."Bank Line Of Credit Options In Canada" . https://www.linkedin.com/posts/stan-prokop-5b52305_business-line-of-credit-options-banks-vs-activity-7389225764916928512-WPZE/
Statistics Canada. "Survey on Financing and Growth of Small and Medium Enterprises." Government Statistical Analysis, 2023. https://www.statcan.gc.ca
7 Park Avenue Financial ." Credit Lines for Business: Your Path to Financial Flexibility" . https://www.7parkavenuefinancial.com/factoring_revolving_credit_line_limit_abl.html
