How a business line of credit works
The lender approves a limit, say $75,000. You draw any amount up to the limit, the funds arrive in a day, and you repay each draw on a schedule, usually weekly or monthly over six to twelve months, with interest charged only on the outstanding balance. As you repay, capacity is restored. Most lines are revolving for a set period, typically one to two years, then reviewed and renewed. Online lines are usually unsecured beyond a personal guarantee and a UCC lien; bank lines are often secured by receivables, inventory or a blanket lien and carry lower rates.
A line differs from a credit card in size, cost and how it is underwritten, and from a term loan in that nothing is owed until you draw. It is the product that fits the cash-flow shape of most small businesses, where money goes out on a schedule and comes in unevenly.
Rates, fees and what a draw costs
Interest is calculated daily on the drawn balance. Published rates in September 2026 run from about 8 to 14 percent APR for bank lines to established borrowers, and from about 20 to 60 percent for online lines to newer businesses or weaker credit. Draw fees of 1 to 3 percent per draw, monthly maintenance fees of $25 to $100, and occasional inactivity fees are where lines differ most, and on a line used often they can cost more than the interest. The table shows the interest on a $40,000 draw by rate and payoff period.
| Payoff | At 12% APR | At 24% APR | At 40% APR |
|---|---|---|---|
| 30 days, lump sum | $400 | $790 | $1,315 |
| 6 months, level payments | $1,410 | $2,850 | $4,850 |
| 12 months, level payments | $2,650 | $5,400 | $9,300 |
| Product | Typical amount | Time to fund | Cost (market range) | Minimums |
|---|---|---|---|---|
| Business line of credit | $10,000 – $250,000 | 1 – 3 business days to open; draws often same day | APR roughly 10% – 60%; some lenders price as a weekly fee on the drawn balance | 6 – 12 months in business; 600+ typical |
| Business term loan | $10,000 – $500,000 | 1 – 3 business days (online lenders) | APR roughly 8% – 45% depending on credit, revenue and term | 1 – 2 years in business; 600+ typical; 640+ for better pricing |
| Working capital loan | $5,000 – $250,000 | 1 – 2 business days | APR roughly 15% – 60%; short-term products may quote a factor rate instead | 6 months in business; 550+ typical |
| Invoice factoring | $10,000 – $5,000,000 (70% – 90% advance on eligible invoices) | 1 – 3 business days after setup | Factoring fee 1% – 5% of the invoice per 30 days | No minimum in many cases; the customers' credit matters most; Owner credit is secondary to customer credit |
| Merchant cash advance | $5,000 – $500,000 | Same day to 2 business days | Factor rate 1.15 – 1.49 (paid as a fixed amount, not interest) | 6 months in business; 500+ (revenue matters more than score) |
How to qualify and how much you can get
Online lines generally require one to two years in business, $15,000 or more in monthly revenue, personal credit around 600 and up, and six to twelve months of clean bank statements; some open at six months for strong files. Limits run 10 to 20 percent of annual revenue, $10,000 to $250,000. Bank lines want two years of returns, credit near 680 and often collateral, and can go far higher. Lenders also review the line periodically; a deteriorating account can lead to a reduced limit or a freeze, which is why the statements have to stay clean after approval, not just before.
Have this ready
Line of credit application file
- Six to twelve months of business bank statements
- Most recent business tax return (bank lines: two years)
- Year-to-date profit-and-loss statement
- Formation documents and EIN
- Driver’s licence for each owner with 20% or more
- Schedule of existing loans and advances
- Receivables or inventory summary for a secured line
Line of credit or term loan?
Use a line for needs that come and go and can be repaid within months: seasonal inventory, payroll between customer payments, a supplier discount, a repair. Use a term loan for a one-time purchase with a long payoff, where a fixed schedule and a lower rate beat flexibility. A balance carried on a line for a year or more at online rates costs as much as a term loan without the fixed end date, which is the most common misuse. The comparison page on this site sets the two side by side.