Loan type
Business lines of credit: what they actually cost when you use them properly
A revolving facility you draw on and repay. The right tool for uneven cash flow, and the wrong one for a permanent funding gap.
At a glance
| Typical limit | $10,000 to $250,000 online; bank and SBA-backed lines run to $5 million |
|---|---|
| Rate | 9.0% - 60.0% APR |
| Interest charged on | Only the drawn balance |
| Draw period | Usually revolving, renewed every 12 months at a bank |
| Repayment | Interest-only on some; principal plus interest on most online lines |
| Collateral | Blanket lien common; secured lines against AR or inventory get better pricing |
| Common extra fees | Annual fee, draw fee, unused-line (non-utilization) fee |
| Time to funding | Same day to 6 weeks |
A good fit when
Your cash needs are recurring and uneven — seasonal inventory, payroll between receivables, a buffer you hope not to use.
A poor fit when
You need a permanent injection of capital. A line used as permanent debt is expensive term debt with a renewal risk attached.
Interest is not the whole cost
A line of credit is priced in more places than a term loan, and the headline rate is often the least of it.
- Draw fee
- 1% to 3% every time you pull money. On a line you draw ten times a year, this dwarfs the interest rate.
- Annual or maintenance fee
- $150 to $500 typical at a bank, whether or not you use the line.
- Unused line fee
- 0.25% to 0.5% a year on the undrawn portion. Common on larger bank facilities. It is the price of having the capacity available.
- Renewal underwriting
- Not a fee, but a real cost: most bank lines are re-underwritten annually, and a bad year can shrink or cancel your line at exactly the moment you need it.
Secured against what?
- Unsecured / blanket lien. Fastest, most expensive. The lender files a UCC-1 on everything but underwrites on cash flow.
- Accounts receivable line. The lender advances a percentage of eligible receivables, usually 70% to 85%. Cheaper, because the collateral is real and self-liquidating. Requires an aging report you can produce reliably.
- Inventory line. Advance rates are lower, typically 30% to 50%, because inventory is a poor liquidation asset. Usually paired with an AR line rather than standing alone.
- Cash- or securities-secured. The cheapest money you will ever see, and it works when you have assets you do not want to sell for tax reasons.
The revolving-versus-not distinction
Many products marketed as "lines of credit" by online lenders are not truly revolving. You draw, and that draw amortizes on its own fixed schedule over six to eighteen months. Repaying it restores your available limit but does not save you interest the way repaying a true revolver does.
Ask one question: if I draw $50,000 and repay it in full in thirty days, what will I have paid? On a real revolver at 12%, roughly $500. On a fixed-payback draw product, possibly $3,000 or more, because the fee was earned at the draw. Same label, six times the cost.
How to actually get a good one
Apply before you need it
Lines are underwritten on your last twelve months. The best time to apply is your best twelve months, which is almost never the moment you feel the need.
Bank where you borrow
Depository relationships still matter for lines more than for term loans. A bank that watches your operating account daily has information no application can convey.
Use it and clean it up
Lenders like to see a line that cycles — drawn and paid to zero periodically. A line that sits permanently at the limit gets re-underwritten as term debt, and often gets cut.
Ask for more than you need
Within reason. Increasing a line later is a full re-underwrite; getting the headroom at origination is nearly free.
Questions people actually ask
How is a business line of credit different from a business credit card?
A card is a line of credit with a payment network attached. The practical differences: cards have far higher rates on carried balances but often a grace period if you pay in full; lines give you cash rather than purchase authority, and generally offer higher limits. Cards are better for spend management, lines are better for cash timing.
Do I pay interest if I do not draw on the line?
Not interest, no. But you may pay an annual maintenance fee, and on larger facilities an unused-line fee of roughly 0.25% to 0.5% on the undrawn amount. Read the fee schedule, not just the rate sheet.
What revenue do I need for a line of credit?
Online lenders commonly start around $100,000 to $250,000 in annual revenue with six to twelve months in business. Banks usually want two years and materially more revenue. An SBA Express revolving line sits in between and can run up to ten years.
Can I get a line of credit with bad credit?
You can get something. Whether you should is another question. Below about 600 the available products are draw-fee heavy with short fixed paybacks, and the effective annual cost is frequently in the high double digits. A secured AR line, if you have business-to-business receivables, is usually the better answer at that credit level.