An operating line of credit is a revolving facility that allows a business to borrow up to a set limit, repay, and borrow again, designed to fund short-term working capital needs rather than long-term asset purchases.

An operating line is the most common form of business banking for growing companies. It is intended to bridge timing gaps, covering payroll and supplier payments while waiting for receivables to be collected, for example, not to fund capital expenditures or structural cash deficits. When a business draws on its operating line and cannot repay it within a normal business cycle, it is typically a signal that the line is being used to fund a problem rather than a timing gap.

In Canada, most operating lines are demand facilities. The bank can call them at any time. They are reviewed annually and the limit is typically tied to a percentage of eligible receivables or a fixed amount based on the business’s financial profile. A line that is always drawn to its maximum, never fully repaid, is viewed by lenders as a structural cash flow problem that the facility is masking.

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How an operating line is used tells a lender as much about the business as its financial statements do. See how Wefinx approaches Virtual CFO services.

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