In This Guide
What Is a Business Line of Credit?
A business line of credit is a revolving credit facility. The lender approves you for a maximum limit — say, $100,000 — and you draw from it as needed, repay what you used, and draw again. You only pay interest on what you’ve actually drawn, not the full limit sitting unused.
It’s similar to a credit card in structure but different in use. Lines of credit typically carry lower interest rates than business credit cards, allow larger draws, and are designed for operational cash flow needs rather than everyday purchases. Unlike a term loan, there’s no single lump sum with a fixed repayment schedule — the facility is available on demand, within the terms of your agreement.
You have a $75,000 line of credit at 18% APR. In June you draw $20,000 to cover payroll while waiting on two large invoices. You pay interest only on that $20,000 for the 45 days it’s outstanding — roughly $450. When the invoices clear, you repay the draw and your full $75,000 is available again. You paid $450 for 45 days of breathing room.
Types: Secured vs. Unsecured, Revolving vs. Non-Revolving
Unsecured Line of Credit
No collateral required. Approval is based on your creditworthiness, revenue, and business history. Faster to get, easier to apply for, but comes with higher rates and lower limits than secured options.
Best for: Businesses with solid revenue and credit that don’t want to pledge assets
Secured Line of Credit
Backed by collateral — accounts receivable, inventory, real estate, or equipment. Lower rates, higher limits, but you risk the asset if you default. Bank and SBA lines are usually secured.
Best for: Lower-credit businesses or those needing $250K+ limits at better rates
Revolving Line of Credit
The standard type. You draw, repay, and the capacity replenishes automatically. No end date on the facility itself — though the lender reviews it annually. This is what most people mean when they say “business line of credit.”
Best for: Ongoing working capital management with unpredictable draw needs
Non-Revolving Line of Credit
Draw once (or multiple times up to the limit), repay it, and the facility closes — it doesn’t replenish. Functionally similar to a term loan but structured as a line. Less common; sometimes used for specific project financing.
Best for: Defined one-time needs where revolving access isn’t required
What a Business Line of Credit Actually Costs
The APR range on business lines of credit is enormous — 8% from a bank to 60%+ from an online lender with a 580 score. Understanding what drives your rate is the most useful thing you can do before you apply.
| Lender Type | Typical APR Range | Typical Limit | Min. Credit Score | Speed |
|---|---|---|---|---|
| Traditional Bank | 7–15% | $50K–$1M+ | 680+ (often 720+) | 2–4 weeks |
| Credit Union | 8–18% | $25K–$500K | 650+ | 1–2 weeks |
| SBA CAPLine | Prime + 2.75–4.75% | Up to $5M | 650+ | 30–90 days |
| Online Lender (prime) | 15–35% | $10K–$250K | 625–650+ | 24–72 hrs |
| Online Lender (subprime) | 35–60%+ | $5K–$100K | 580+ | 24–48 hrs |
| CDFI / Nonprofit Lender | 8–24% | $5K–$150K | No minimum (mission-driven) | 1–3 weeks |
Hidden costs to check for
- Draw fee: Some lenders charge 1–2% every time you pull funds from the line
- Maintenance / annual fee: $150–$500/year just to keep the facility open
- Inactivity fee: A charge if you don’t draw for a set period — common with bank lines
- Origination fee: 0.5–3% of the credit limit, charged once at opening
- Prepayment penalty: Rare on lines, but confirm it’s absent before signing
Some online “lines of credit” require weekly repayments on the full draw amount — not just interest. This structure acts more like a short-term loan than a true revolving line. Calculate the effective APR on any weekly-payment product before comparing it to a monthly-payment line.
What You Need to Qualify — By Credit Score Tier
The honest answer is that the score requirement depends entirely on which lender type you’re targeting. Here’s what each tier can realistically access:
Non-credit factors that matter
Credit score is the headline number, but lenders also weigh:
- Time in business: Most lenders want 6 months minimum; banks want 2+ years
- Annual revenue: Common minimums are $50K–$100K/year for online lenders; $250K+ for banks
- Debt service coverage ratio (DSCR): Your ability to service new debt from existing cash flow — lenders want 1.25x minimum
- Industry: High-risk industries (cannabis, adult entertainment, firearms) face restrictions or outright exclusions at most lenders
- Existing liens: Active MCA or UCC blanket liens against your assets make many lenders decline — see MCA UCC Liens
Where to Get a Business Line of Credit
| Lender | Min. Score | Min. Revenue | Credit Limit | Rate | Good For |
|---|---|---|---|---|---|
| BlueVine | 625 | $10K/mo | Up to $250K | 15–40% APR | Fast draws, simple online interface |
| OnDeck | 625 | $100K/yr | Up to $100K | 27–99% APR | Quick approval; fast funding |
| Fundbox | 600 | $30K/yr | Up to $150K | 10–79% APR | Very low revenue requirement; weekly draws |
| Wells Fargo Business Line | 680+ | $100K/yr | $5K–$150K | Prime + 1.75–6.5% | Existing banking relationship; best rates |
| Chase Business | 680+ | $200K+/yr | $10K–$500K | Prime + 3–6% | Large, established businesses |
| Kabbage (AmEx) | 640 | $4.2K/mo | Up to $250K | Monthly fee model | Unusual revenue-based fee structure — calculate APR equivalent |
| Community CDFI | None required | Mission-based | $5K–$150K | 8–24% | Underserved communities; credit rebuilding |
If you’ve had a business checking account at the same bank for 2+ years with consistent deposits, your bank has more data on your business than any online lender ever will. That relationship has value in underwriting. Apply there first — and if declined, then move to online lenders.
How to Apply for a Business Line of Credit
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Pull your credit reports first
Check both personal (FICO via AnnualCreditReport.com) and business credit (Nav or the bureaus directly: Dun & Bradstreet, Experian Business, Equifax Business). Dispute any errors before applying — correcting one error can move your score 20–40 points.
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Gather your documents
You’ll typically need: 3–6 months of business bank statements, most recent 2 years of business tax returns (banks), profit & loss statement (YTD), accounts receivable aging (for secured lines), and business registration documents. Online lenders often need only bank statements via Plaid connection.
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Target the right lender type for your profile
Use the lender table above as your guide. Don’t apply to bank lines if you’re at 620 — you’ll take a hard inquiry hit with no realistic chance of approval. Apply where you fit first, then work up the ladder as your credit improves.
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Pre-qualify where possible
Many online lenders offer a soft-pull pre-qualification that shows you what you’d likely qualify for without dinging your credit. BlueVine, Fundbox, and Kabbage all offer this. Banks typically don’t — their application triggers a hard pull.
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Compare the APR, not the fee
Lenders frame costs in different ways: weekly factor rates, monthly fees, annualized APR. Always convert to APR for apples-to-apples comparison. A 5% monthly fee on a 6-month draw is a 60%+ APR — it sounds reasonable until you do the math.
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Negotiate the terms before accepting
Most business owners don’t realize the offered rate isn’t always final. If you have competing offers, use them. Ask specifically about fee waivers, draw fee elimination, and rate reduction for autopay. Banks will negotiate more than online lenders, but both have room to move.
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Use the line strategically — don’t max it
Your credit utilization on the line of credit affects your business credit profile. Keeping utilization under 30% of your limit — even if you have more available — signals creditworthy behavior to future lenders. Don’t treat it as an emergency fund you drain to zero every month.
Not sure which line of credit fits your business?
We match small businesses with the right funding option based on revenue, credit, and how quickly you need capital. No obligation, no broker fees.
Check What You Qualify For →When a Business Line of Credit Makes Sense
✓ Use a line of credit for…
- Seasonal cash flow gaps (inventory ahead of busy season)
- Bridging the gap between when you pay suppliers and when customers pay you
- Emergency repairs or unexpected expenses
- Payroll coverage during a slow month
- Taking advantage of a vendor discount for early payment
✗ Don’t use a line of credit for…
- Equipment or asset purchases (use an equipment loan — lower rate, purpose-built)
- Long-term capital expenditure — the revolving structure means your rate resets
- Ongoing operating losses — a line doesn’t fix a business model problem
- Paying off existing debt — you’re just moving debt from one bucket to another
Business line of credit vs. MCA: the comparison that matters most
If you’ve been using merchant cash advances for working capital, a business line of credit is almost always the better tool — cheaper, more flexible, and doesn’t create the daily cash drain that MCAs do. The catch is qualification: the same revenue that qualifies you for an MCA at 1.35x doesn’t automatically mean you’ll get a line of credit at 25% APR.
If you’re in MCA debt right now, the path to a line of credit runs through paying off the MCA and clearing the UCC lien first. With that done, your options open significantly. See MCA Debt Relief for a structured path out.
Business line of credit vs. business credit card
Credit cards are more convenient for small recurring purchases. Lines of credit give you access to larger amounts at lower rates, and the draws go directly to your bank account rather than requiring a card swipe. For purchases over $5,000 or situations where you need actual cash, a line of credit is the better instrument. For everyday business expenses under $1,000, a rewards credit card often beats a line of credit when you pay the balance monthly.
Frequently Asked Questions
Does applying for a business line of credit hurt my credit score?
It depends on the lender. Pre-qualification checks are typically soft pulls — no credit impact. The formal application triggers a hard inquiry, which may reduce your score by 5–10 points temporarily. The good news: credit scoring models treat multiple hard inquiries within a 14–45 day window as a single inquiry for rate-shopping purposes. Apply to your top two or three choices within the same 2-week period to minimize the impact.
Can a startup get a business line of credit?
It’s difficult. Most traditional and online lenders require at least 6 months in business, and banks typically want 2 years. Startups under 6 months have a few options: a personal line of credit (using personal credit), a secured business credit card, or a community CDFI that evaluates based on the business plan and owner profile rather than revenue history. Once you hit 6 months with consistent deposits, more options open up. See Startup Funding Guide for alternatives during this stage.
What’s the difference between a business line of credit and a business term loan?
A term loan gives you a lump sum upfront that you repay on a fixed schedule — you pay interest on the full amount from day one. A line of credit gives you access to a pool of funds you draw from as needed, paying interest only on what you’ve used. Term loans are better for defined, one-time uses (equipment, a specific expansion project). Lines of credit are better for ongoing, variable cash flow needs.
How long does it take to get approved?
Online lenders can approve and fund within 24–48 hours. Community banks typically take 1–2 weeks. Traditional banks with full underwriting take 2–4 weeks. SBA CAPLines take 30–90 days. If you need capital in the next 48 hours, an online lender is your only realistic option — but you’ll pay the speed premium in higher rates.
Do I need collateral to get a business line of credit?
For unsecured lines (common with online lenders), no collateral is required — approval is based on creditworthiness and revenue. For bank lines, collateral is often expected, particularly for lines above $50,000. Banks may ask for accounts receivable, inventory, or real estate as security. Some lenders also require a personal guarantee, which means your personal assets are on the line if the business defaults.
Can I have multiple business lines of credit at once?
Yes, technically — there’s no rule preventing it. Whether you’ll be approved for a second line while carrying an existing one depends on your debt service coverage ratio. Each open line adds to your debt obligations in a lender’s calculation. If you’re asking because you want more total credit than one lender will give, the better approach is usually to increase your limit with your existing lender after 12 months of good usage history.
What happens if I don’t use my business line of credit?
If there are no draws, there’s generally no interest charged — that’s the nature of a revolving facility. However, some lenders charge an annual maintenance fee or an inactivity fee if you don’t draw for a set period (typically 90–180 days). Unused credit also looks good on your business credit profile (low utilization), which can help when you apply for other financing in the future.