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Commercial Equity Line of Credit: Is it Right For You?

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Commercial Equity Line of Credit: Is it Right For You?

Updated: July 8th, 2021

Commercial Equity Line of Credit: Is it Right For You?

Small businesses often need access to additional working capital to keep growing their business. One simple, affordable way to secure this financing is through a commercial equity line of credit.

A commercial equity line of credit lets you borrow against your property equity to access ongoing revolving capital. It’s a fast, reliable way to boost your working capital and fund minor expenses on a day-to-day and month-to-month basis.

Below, we’ll explain everything you need to know about commercial equity lines of credit. We’ll break down the pros and cons and which businesses will benefit most from this type of financing.

What Is a Commercial Equity Line of Credit?

A commercial equity line of credit (CELOC) allows you to leverage the equity in your commercial property to get access to revolving credit. You’ll typically get a maximum credit limit, which you can draw from as often as you like. Plus, you only pay interest on the funds that you use, rather than the entirety of your credit maximum.

A commercial equity line of credit goes by many names, but they all mean essentially the same thing. Here are a few other terms you may encounter:

  • Small business equity line of credit
  • Commercial real estate line of credit
  • Commercial property line of credit
  • Real estate line of credit
  • Land equity line of credit

Collateral Types

To help you score a lower rate, your lender will use your property as collateral on your line of credit. Here are a few types of properties lenders will typically consider for a CELOC:

  • Office
  • Warehouse
  • Industrial
  • Retail
  • Multi-family housing buildings
  • Land

However, be sure to check with your lender to see what types of properties they’ll accept as collateral.

Commercial Equity Line of Credit Uses

You can use a CELOC to finance your business in several ways—here are just a few:

  • Cover operating expenses
  • Finance unexpected growth opportunities
  • Supplement a time gap in your accounts receivable
  • Expand your business
  • Purchase inventory
  • Buy out a partner
  • Fund equipment purchases
  • Cover payroll

Commercial Equity Loan vs Commercial Equity Line of Credit

So, what’s the difference between a commercial equity loan and a commercial equity line of credit? Here’s what you need to know:

A commercial equity loan lets you tap into the equity you’ve built up in your property to get immediate access to cash. A lender will typically distribute your funds in one lump sum that you can use to finance a single business-related project or expense. You’ll be given a set repayment schedule with a pre-determined number of payments.

On the other hand, a commercial equity line of credit gives you access to ongoing cash, rather than a single lump sum, so if you want to expand your working capital or finance ongoing projects, a CELOC is often the better choice. 

Also keep in mind that at the end of your 5-to-10 year term, your CELOC will be converted into a loan that you’ll pay off over a set repayment period.

Small Business Equity Line of Credit Pros and Cons

While small business equity lines of credit can be great financing tools for your business, they’re not for everyone. Here are the pros and cons you should consider before signing on the dotted line:


  • Quick Cash: A CELOC gives you access to immediate cash whenever you want it, meaning that if you ever need extra capital, you can tap into your credit line in a heartbeat. However, if you don’t need it, there’s nothing stopping you from keeping it in your back pocket for a rainy day.
  • Lower Interest Rate: CELOCs tend to have lower interest rates than other revolving credit lines, such as business credit cards.
  • Flexible Financing: You can cover just about any business-related expense with a CELOC.
  • Cash Cushion: You can keep a CELOC on hand in case of emergencies. This can be a great alternative to building a huge savings fund, especially if you’re running on thinner margins.


  • Extra Fees: Some lenders add expensive fees and conditions to CELOCs. Make sure you always read the fine print and calculate your total costs before securing this type of financing.
  • Irresponsible Spending: Just because you have additional financing on hand doesn’t mean you should spend it. A CELOC can sometimes tempt business owners to spend beyond their means, leading to debt issues.
  • Risk: With a CELOC, you’ll be putting your property up as collateral. If you default on your payments, your lender could seize your assets.

Is a Commerical Equity Line of Credit Right for Your Business?

If you need access to capital but not sure exactly how much, a commercial equity line of credit is likely a good fit for your business. A CELOC gives you ready access to capital whenever you need it, so you don’t need to rush to the bank to get an expensive loan when the opportunity (or emergency) arises.

Of course, you’ll need high-value assets to qualify for a commercial equity line of credit. Lenders will calculate your credit line’s limit depending on the value of the assets you’re willing to collateralize. You’ll also need a good credit score to qualify.

You’ll need to reach out to a lender to obtain a commercial real estate loan. Lenders will look at your business finances, credit, and the property you plan to use the funds to finance.
You can use a variety of loans to finance a commercial property: SBA 7(a) Loans, SBA 504 Loans, Term Loans, Mortgage Loans, and Bridge Loans are all viable options.
You’ll typically need high-value assets and a decent credit score to qualify for a commercial line of credit. You’ll also need to prove consistent revenue.

Bottom Line

A commercial equity line of credit can be an excellent financing tool for businesses that need access to additional ongoing capital. If you need extra cash to fund any business-related expenses, rest assured, this funding option has you covered.

If you’re interested in securing a CELOC, talk to your lender. Some banks require CELOC borrowers to be existing customers, so it’s best to start with your current financial partner. If that’s not an option, don’t worry—there are plenty of other alternative and online lenders that may be willing to work with you.

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