A business line of credit is a revolving credit limit — often $10,000 to $250,000 or more — that a business can draw from as needed, repay, and draw from again, paying interest only on the outstanding balance rather than the full limit. It works much like a credit card without the plastic: you are approved for a maximum amount, you pull cash when you need it, and your available credit replenishes as you pay it back.
This structure makes a line of credit one of the most flexible financing tools for handling uneven cash flow, seasonal swings, unexpected expenses, and short-term opportunities. Below we cover how draws and repayment work, typical rates and fees, qualification requirements, and how a line of credit stacks up against term loans and revenue-based financing.
Key takeaways
- A business line of credit is revolving: you draw, repay, and reuse up to a set limit.
- You pay interest only on the amount drawn, not the entire credit limit.
- Typical small-business limits range from $10,000 to $250,000 or more.
- Bank line APRs start around 8%; short-term online lines can exceed 60%.
- Online and revenue-based lenders often accept FICO scores as low as 500 with strong revenue.
- Approval is frequently based on 3–6 months of sales and bank deposits.
- Online lines can be approved the same day and funded within 24 to 48 hours.
- Lines can be secured (collateral, lower rates, higher limits) or unsecured (personal guarantee, higher rates).
- Cost is measured in APR, which falls with early repayment — unlike a fixed factor rate.
- Best used for uneven cash flow, seasonality, emergencies, and short-term opportunities rather than large one-time investments.
How a Business Line of Credit Works
A lender approves a maximum credit limit. You can draw any amount up to that limit at any time, and interest accrues only on the funds you have actually drawn. As you repay principal, that amount becomes available to borrow again — this is what makes the facility revolving.
- Credit limit: the maximum outstanding balance, commonly $10,000 to $250,000 for small businesses, higher for established companies.
- Draw period: the window during which you can pull funds, often 6 to 24 months, frequently renewable after review.
- Repayment: each draw is typically repaid over a set term (for example, 6 to 24 months) in weekly or monthly installments, or as interest-only with principal due later, depending on the structure.
- Interest on usage only: if you have a $100,000 limit and draw $20,000, you pay interest on $20,000 — not the full limit.
Lines are either secured (backed by collateral such as receivables, inventory, or equipment, usually with lower rates and higher limits) or unsecured (no specific collateral, often requiring a personal guarantee, with smaller limits and higher rates).
Typical Rates, Fees, and Costs
Pricing on a business line of credit is usually expressed as an APR (annual percentage rate), which makes it straightforward to compare with other financing. Rates vary widely based on credit profile, revenue, time in business, and whether the line is secured.
| Cost element | Typical range | Notes |
|---|---|---|
| APR | ~8% to 60%+ | Bank lines are lowest; online/short-term lines run higher |
| Credit limit | $10,000 to $250,000+ | Secured lines can go much higher |
| Draw fee | 0% to 3% per draw | Charged each time you pull funds, on some lines |
| Maintenance/monthly fee | $0 to ~$50/mo | Some lenders waive if a minimum balance is used |
| Origination fee | 0% to 3% | One-time, on some products |
Because you pay interest only on what you draw, a line of credit that sits mostly unused can be inexpensive to keep open — a key advantage over a lump-sum term loan where interest accrues on the entire balance from day one.
Qualification Requirements
Requirements depend heavily on the lender. Traditional banks set the highest bar; online and alternative lenders are more flexible and faster, in exchange for higher rates.
| Factor | Bank line | Online / alternative line |
|---|---|---|
| Personal FICO | ~680+ | 500+ often accepted with strong revenue |
| Time in business | 2+ years | 6+ months common |
| Annual revenue | $100,000+ | $50,000+ (approval weighted on sales/bank deposits) |
| Documentation | Tax returns, financials | 3–6 months of bank statements |
| Approval speed | Days to weeks | Same day to 48 hours |
Many alternative lenders approve based primarily on consistent sales and bank deposits rather than credit score alone, which is why revenue-based lines can accept FICO scores as low as 500. Most unsecured lines require a personal guarantee from the owner.
Line of Credit vs. Term Loan vs. Revenue-Based Financing
The right product depends on whether your need is recurring/flexible or a one-time lump sum.
| Feature | Line of credit | Term loan | Revenue-based / MCA |
|---|---|---|---|
| Structure | Revolving limit | Lump sum | Lump sum vs. future sales |
| Interest basis | Only on amount drawn | Full balance | Fixed factor rate (e.g., 1.1–1.5) |
| Best for | Ongoing/uneven cash flow | Defined one-time project | Fast cash, weaker credit |
| Reusable | Yes | No | No |
| Typical speed | Same day–48 hrs (online) | 1–5 days | Same day–48 hrs |
| Cost measure | APR | APR | Factor rate |
A factor rate (used with revenue-based products) is a fixed multiplier: $50,000 at a 1.3 factor means you repay $65,000 total regardless of how quickly you pay. An APR falls when you repay early. For flexible, recurring needs, a line of credit is usually the most cost-efficient choice.
When to Use a Business Line of Credit
A line of credit shines when the timing or size of the need is uncertain. Common uses include:
- Bridging cash flow gaps between paying suppliers and collecting from customers.
- Managing seasonality — stocking up before a busy season and repaying after sales come in.
- Covering payroll or rent during a slow month without a permanent debt.
- Handling emergencies such as equipment repair or an urgent inventory buy.
- Funding short-term opportunities like a bulk-discount purchase or a rush order.
It is less ideal for large, single, long-term investments (like buying real estate or a major buildout), where a term loan with a longer repayment schedule typically costs less overall.
How to Apply and Get Approved Faster
To improve approval odds and speed, prepare before you apply:
- Gather 3–6 months of business bank statements — the primary document alternative lenders review.
- Keep deposits consistent and minimize negative balance days and overdrafts in the months before applying.
- Know your average monthly revenue; many limits are set as a fraction of monthly deposits.
- Reduce existing daily/weekly debit obligations that eat into cash flow, since lenders assess remaining capacity.
- Have your EIN, business formation documents, and a voided check ready.
Online lenders can often issue a decision the same day and fund a first draw within 24 to 48 hours once documents are verified.
Frequently asked questions
What is a business line of credit?
It is a revolving credit facility with a set maximum limit that a business can draw from as needed, repay, and reuse. You only pay interest on the amount you have actually drawn, not the full limit, which makes it more flexible than a lump-sum loan.
How is a line of credit different from a term loan?
A term loan gives you a single lump sum and charges interest on the full balance from day one. A line of credit is revolving — you draw only what you need, pay interest only on that amount, and reuse the limit as you repay. Lines suit ongoing or uneven needs; term loans suit one-time projects.
What credit score do I need?
Bank lines typically want a personal FICO around 680 or higher. Online and revenue-based lenders often accept scores as low as 500 when sales and bank deposits are strong, because approval is weighted heavily on revenue rather than credit alone.
How much can I borrow?
Small-business lines commonly range from $10,000 to $250,000 or more. Secured lines backed by collateral such as receivables or inventory can reach higher limits. Your limit is often set as a fraction of your average monthly bank deposits.
How fast can I get funded?
Traditional banks may take several days to a few weeks. Online and alternative lenders can approve the same day and fund a first draw within 24 to 48 hours once bank statements and basic documents are verified.
What does a line of credit cost?
Pricing is usually an APR, ranging from roughly 8% for bank lines to 60% or more for short-term online lines. Some products add per-draw fees (0–3%), monthly maintenance fees, or a one-time origination fee. Because interest applies only to drawn funds, an unused line is inexpensive to keep open.
Do I need collateral?
Not always. Unsecured lines require no specific collateral but usually a personal guarantee and often carry higher rates and lower limits. Secured lines are backed by assets like receivables, inventory, or equipment, and typically offer lower rates and larger limits.
Is a line of credit better than a merchant cash advance?
For recurring, flexible needs a line of credit is usually more cost-efficient because you pay interest (APR) only on what you use and can repay early to save. Revenue-based advances use a fixed factor rate, so the total cost does not fall if you repay quickly — but they can fund very fast and accept weaker credit.
