How does a business line of credit work?
A funder approves a credit limit, and you draw funds as needed up to that limit. You make payments on the outstanding balance, and as you repay, that amount usually becomes available again. Some lines are revolving and renew; others have a fixed draw period. Ask whether there are draw fees, maintenance fees or a minimum balance.
Think of it as a reserve you do not have to hold in the bank. A ski-town café can draw in May and October, the shoulder months when tourists thin out, and repay in winter and summer when lines return. A college-town pub can lean on it during summer break and clear the balance once students are back.
When does a line of credit beat lump-sum funding?
A line of credit usually beats a lump sum when the need repeats or the exact amount is uncertain. Recurring slow seasons, a nightclub's quiet weekdays, distributor invoices that arrive before holiday weekend sales come in, and surprise repairs all fit. A lump sum fits a single known expense with a clear timeline, such as a renovation or pre-season inventory buy.
- Good fit: off-season rent and payroll, weekday payroll between big weekends, a walk-in compressor that fails in August, annual liquor liability insurance renewals.
- Weaker fit: a large renovation, which usually works better as a term loan, or new equipment, which usually fits equipment financing.
What does a line of credit cost?
Cost depends on the rate or factor applied to what you draw, plus any draw, maintenance or renewal fees. Because you pay only on the used balance, an untouched line may cost little or nothing, depending on its fees. The total cost rises if you carry a full balance for long periods, which can make a term product cheaper for long-term needs.
Compare offers on the same scenario. For example, estimate what you would draw in your two slowest months and how quickly you would repay it, then ask each funder for the total cost of that pattern. That comparison is more useful than looking at a rate alone.
How do funders review seasonal businesses for a line?
Many funders review a full year of deposits for seasonal hospitality businesses, because a line of credit is designed for the ups and downs. Requirements vary by product and funder; many look at time in business, monthly revenue and credit. Consistent peak seasons, a healthy average balance and a clear explanation of your slow months usually help more than one strong month.
Apply before you need the money. A line set up in a strong month, while deposits look healthy, is typically easier to arrange than one requested in the middle of a slow stretch. Many owners open a line at the end of peak season and hold it for the months ahead.
Beach-town bars, lake-country inns and wedding venues with a clear peak all fit this pattern. See event venues and small hotels and inns for how those businesses plan around seasons.
What are the risks of relying on a line of credit?
The main risk is using a line to cover ongoing losses rather than timing gaps. If the balance never returns to zero between seasons, the line has become long-term debt at a short-term price. Funders may also reduce or pause a line if deposits fall. Set a rule, such as clearing the balance every peak season.
Watch for these signs:
- The balance grows each year instead of cycling down.
- Draws are paying for other debt payments.
- You are near the limit before the slow season even starts.
If that describes your situation, talk through options before drawing more, including whether a longer-term product would lower your payment.
What you’ll typically need
- A full year of business bank statements for seasonal businesses
- Owner identification and business details
- Recent card processing statements
- A short note on your slow months and peak season
Frequently asked questions
Can a bar have a line of credit and working capital at the same time?
Yes, as long as the combined payments fit your cash flow. Some owners take working capital for a one-time project, such as stocking a new beer garden, and keep a line of credit for recurring slow periods. Funders review existing obligations, so be upfront about every payment you already carry.
How quickly can I draw from a line once it is open?
Once a line is set up, draws are often available quickly, sometimes within a business day or two, depending on the funder. The initial approval takes longer, because it involves document review. That is why it helps to open the line before the slow season, not in the middle of it.
Do I pay anything if I do not use the line?
It depends on the agreement. Some lines have no cost when unused, while others charge maintenance, annual or renewal fees. Ask each funder for a full fee schedule, including draw fees, so you know the cost of holding the line even in a year when business is strong.
Is a line of credit good for a brand-new café?
It can be harder to arrange before a café has sales history, because funders set limits based on deposits. New owners often start with equipment financing for the espresso machine and build a record of deposits, then apply for a line once they have several months of steady sales to show.
Set up the reserve before the slow season
Tell us about your seasonal pattern and we will look for line of credit options through our funding partners.
Updated September 14, 2026 · OpenTab Capital Funding Team