Business Line of Credit — Complete Guide for Small Businesses [2026]
Last reviewed: May 2026 — APR ranges verified via BlueVine, Fundbox, OnDeck, and Wells Fargo published line-of-credit terms and Nav.com lender database.
- Business lines of credit range from 8–30% APR for qualified borrowers — compared to 40–350% effective APR for merchant cash advances.
- You pay interest only on the drawn balance: a $100,000 credit line with $20,000 drawn at 15% APR costs approximately $247/month in interest.
- Online lenders (BlueVine, Fundbox) serve businesses as young as 6 months with 600+ credit; bank LOCs require 2+ years and 680+ credit but offer rates from Prime + 1%.
- Lines renew annually — the lender reviews and may change your limit at each renewal cycle.
What Is a Business Line of Credit?
A business line of credit (LOC) is a revolving credit facility that lets you draw funds up to a set limit, repay them, and draw again — as many times as needed. Current rates range from 8–30% APR (annual percentage rate) for qualified borrowers, and you only pay interest on the amount you actually draw, not the full credit limit. Rates depend on credit profile, collateral, and term length. Think of it as a business credit card without the card: a flexible pool of capital available on demand. Rate ranges are based on lender-published schedules as of May 2026.
A line of credit is not a term loan. There is no fixed repayment schedule — you draw and repay on your timeline, subject to minimum payment requirements. Limits typically range from $10,000 to $500,000 for small businesses.
You pay interest only on the drawn balance: a $100,000 credit line with $20,000 drawn at 15% APR costs approximately $247/month in interest.
FundingCompass research, May 2026
Pros
- You pay interest only on the amount you draw — a $100,000 credit line with $20,000 drawn at 15% APR costs approximately $247/month in interest
- Revolving structure means repaid funds immediately restore your available balance — one facility handles recurring working capital needs indefinitely
- Online lenders (BlueVine, Fundbox) approve businesses as young as 6 months with 600+ credit scores, with funding in as little as 24 hours
- Cheapest flexible financing product for businesses that qualify — 8–30% APR vs. 40–350% for merchant cash advances (MCAs)
Cons
- Online lender rates can reach 78–97% APR at the ceiling — a $50,000 draw at 78% APR for 60 days costs $6,411 in interest
- Annual renewal means the lender can reduce your limit or close the facility at review — it is not a permanent credit commitment
- Most online LOCs require a personal guarantee — your personal assets are at risk if the business defaults
- Bank LOCs above $100,000 typically require a blanket UCC-1 (a public lien notice filed when a lender takes a security interest in your business assets) on all business assets
- Revolving Credit
- A credit structure where repaid amounts immediately restore your available balance. Unlike a term loan (which you repay and close), a revolving line can be drawn, repaid, and drawn again indefinitely within the draw period.
- Draw Period
- The period during which you can draw funds from the credit line. Most business LOCs have a 12-month term with annual renewal. During the draw period, you make minimum payments on outstanding balances.
- Prime Rate
- The benchmark interest rate used by US banks for short-term business loans, currently 7.5% as of May 2026. Bank LOC rates are typically expressed as Prime plus a margin (e.g., Prime + 2% = 9.5%).
- Utilisation Rate
- The percentage of your credit line currently drawn. Keeping utilisation below 30% signals financial health to lenders reviewing your credit for future financing. Sustained utilisation above 80% may trigger a limit review at renewal.
How a Business Line of Credit Works
Drawing and Repaying Funds
The credit limit. Your lender approves a maximum borrowing amount based on your revenue, credit score, and business history. This limit does not change unless you request a review.
Drawing funds. You access funds by transferring from the credit line to your business checking account — often same-day for established accounts. Some lenders provide a dedicated credit card or cheque book linked to the line.
Interest calculation. Interest accrues only on the outstanding drawn balance, calculated daily. If your limit is $100,000 and you have drawn $25,000, you pay interest only on the $25,000.
Repayment and Annual Renewal
Repayment. Most lines require minimum monthly payments (interest-only or a small percentage of the balance). Full repayment restores your available credit for future draws. Unlike a term loan, there is no fixed end date — lines renew annually upon review.
Annual renewal. Most business lines of credit have a 12-month term and are reviewed at renewal. The lender may increase, maintain, or reduce your limit based on your updated financial performance.
Current Business Line of Credit Rates — 2026
| Lender | APR Range | Credit Limit | Min. Credit Score | Min. Time in Business | Funding Speed |
|---|---|---|---|---|---|
| BlueVine | 15–78% | Up to $250,000 | 625 | 6 months | 24 hours |
| Fundbox | 10–79% | Up to $150,000 | 600 | 6 months | Next business day |
| OnDeck | 29–97% | Up to $100,000 | 625 | 12 months | Same day |
| Kabbage / Amex Blueprint | 20–88% | Up to $250,000 | 640 | 12 months | Minutes |
| Wells Fargo LOC | Prime + 1–5% (~9–13%) | Up to $500,000 | 680+ | 2 years | Days–weeks |
| Chase LOC | Prime + 1–4% (~9–12%) | Up to $500,000 | 680+ | 2 years | Days–weeks |
Rates verified May 2026 via published lender schedules. Online lender rates are highly variable by credit profile. Bank rates are estimates based on current prime rate (7.5% as of May 2026).
At 15% APR (BlueVine's floor), a $50,000 draw for 60 days costs $1,233 in interest. At 78% APR (BlueVine's ceiling), the same draw costs $6,411. The rate you receive is heavily determined by your credit score and revenue — model your actual offer before drawing.
Scenario: A wholesale distributor draws $40,000 from a $75,000 business LOC at 18% APR to cover a 45-day inventory gap before a major seasonal order is paid.
| Amount drawn | $40,000 |
| APR | 18% |
| Draw period | 45 days |
| Interest | $40,000 × 18% ÷ 365 × 45 = ~$888 |
| Effective APR | 18% |
| MCA alternative (1.30 factor rate) | $12,000 in fees |
| LOC savings vs. MCA | $11,112 |
The same operating capital need from an MCA at a 1.30 factor rate would cost $12,000 in fees — $11,112 more for the identical cash amount.
Secured vs. Unsecured Lines of Credit
| Secured LOC | Unsecured LOC | |
|---|---|---|
| Collateral required | Yes — blanket lien, specific assets, or real estate | No collateral beyond personal guarantee |
| Typical rate | Lower — 8–20% APR | Higher — 15–80% APR |
| Credit limit | Higher — up to $500,000+ | Lower — typically $10,000–$250,000 |
| Approval difficulty | More rigorous | More accessible |
| Best for | Established businesses with assets | Businesses without significant collateral |
Most online lender LOCs are technically unsecured but require a personal guarantee — meaning your personal assets are at risk if the business defaults. Bank LOCs above $100,000 typically require a blanket UCC-1 lien on business assets.
Who Qualifies for a Business Line of Credit?
Online lenders (BlueVine, Fundbox, OnDeck):
- Personal credit score 600+
- 6–12 months in business
- $100,000–$180,000 minimum annual revenue
- No open bankruptcies
Bank lenders (Wells Fargo, Chase):
- Personal credit score 680+
- 2+ years in business
- $250,000+ annual revenue
- Existing banking relationship preferred
- Profitability preferred but not always required
What disqualifies most applicants:
- Credit score below 600
- Revenue under $100,000 annually
- Open bankruptcies or recent charge-offs
- Outstanding tax liens (may be worked around with IRS payment plan documentation)
- Business less than 3 months old
A business line of credit is the most flexible and cost-effective revolving working capital product available to small businesses — but meeting the 600+ credit score, $100,000+ annual revenue, and 6+ months in business thresholds is the prerequisite for accessing it.
Business LOC vs. Invoice Factoring vs. MCA
| Business LOC | Invoice Factoring | Merchant Cash Advance | |
|---|---|---|---|
| Cost | 8–30% APR | 18–60% eff. APR | 40–350% eff. APR |
| Approval basis | Your credit + revenue | Customer creditworthiness | Daily sales volume |
| Min. credit score | 600–680+ | Less relevant | 500+ |
| Min. time in business | 6–24 months | 3–6 months | 3–6 months |
| Repayment | Flexible draw-and-repay | Reserve after customer pays | % of daily sales |
| Best for | Ongoing working capital | B2B invoice gap | Last resort / high-return windows |
For businesses that qualify, a line of credit is almost always cheaper than either factoring or an MCA. The qualification bar is higher — but worth clearing if you can. See Invoice Factoring vs. Line of Credit for a detailed cost model.
The CFPB small-business lending resources provide guidance on understanding line of credit terms and your rights as a small business borrower.
How to Strengthen Your LOC Application
1. Build business credit before applying. Register with Dun & Bradstreet (get a DUNS number), open a dedicated business bank account, and pay all business obligations on time for 6+ months.
2. Show consistent revenue. Lenders look for stable or growing monthly revenue — not spikes. Seasonal businesses should apply after their strong season so bank statements show peak performance.
3. Reduce existing debt utilisation. High utilisation on existing business credit cards (above 30%) hurts your application. Pay down balances before applying.
4. Apply to multiple lenders. Online LOC applications typically use soft credit pulls for pre-qualification — you can check rates at multiple lenders without damaging your credit score.
5. Start with your bank. An existing banking relationship with 12+ months of account history is your strongest qualification for a bank LOC. Apply to your primary bank first before approaching online lenders.
Frequently Asked Questions
What is the difference between a business line of credit and a term loan?
A business line of credit is revolving — you draw, repay, and draw again, with no fixed repayment schedule beyond minimum payments. A term loan is a fixed lump sum repaid on a set schedule over a defined period. Lines of credit are better for ongoing, variable working capital needs. Term loans are better for a specific, one-time capital need with a defined ROI (equipment purchase, expansion project).
Does a business line of credit affect my personal credit?
Most small business LOCs (especially from online lenders) require a personal guarantee and run a hard credit inquiry at application. The account typically appears on your personal credit report. Payment history on the LOC can affect your personal credit score — positively if paid on time, negatively if you miss payments.
How much of my credit line should I use?
Keep utilisation below 30% of your credit limit where possible — the same principle that applies to personal credit cards. High utilisation signals financial stress to lenders reviewing your profile for future financing. If you consistently need 80%+ of your limit, consider applying for a limit increase rather than staying perpetually at high utilisation.
Can I get a business line of credit as a startup?
Some online lenders (BlueVine, Fundbox) work with businesses as young as 6 months. True startups (under 6 months) have very limited options for a business LOC — the most accessible route is a personal line of credit or SBA microloan. Building 6 months of revenue history and establishing a business bank account is the fastest path to LOC eligibility.
What happens if I miss a payment on my business line of credit?
Missing a payment triggers late fees (typically $25–$50 or 3–5% of the minimum payment), a potential interest rate increase, and a negative mark on your credit report. Missing multiple payments can trigger a default notice, suspension of drawing privileges, and demand for full repayment. Business LOCs from online lenders typically have ACH auto-debit — ensure sufficient funds in your account on payment dates.
Is a revolving line of credit better than a fixed term loan for working capital?
For working capital needs that recur (payroll gaps, inventory cycles, slow-paying customers), a revolving LOC is generally better — you pay interest only when you draw, and the facility is available for future use without reapplying. For a one-time capital need with a defined payback period, a term loan may be cheaper overall because lenders can price fixed risk more accurately than open-ended revolving risk.
A wholesale distributor with $400,000/year in revenue draws $40,000 from a $75,000 business LOC at 18% APR (annual percentage rate) to cover a 45-day inventory gap before a major seasonal order is paid. Interest cost: $40,000 × 18% ÷ 365 × 45 = approximately $888. The distributor repays the draw when the customer pays, restoring the full $75,000 available balance for the next cycle. The same cash need from an MCA at a 1.30 factor rate would cost $12,000 in fees — $11,112 more. Rates based on lender-published schedules as of May 2026.
Who this is for: Businesses with 6+ months in business, $100,000+ annual revenue, and a 600+ credit score (online lenders) or 680+ (banks) that need flexible, recurring operating capital access — particularly for payroll gaps, inventory cycles, or seasonal cash flow management.
Who should look elsewhere: Startups under 6 months old, businesses with credit below 600, or companies needing a single large capital injection for a specific purpose (equipment, expansion) — a term loan or equipment financing will be cheaper and simpler for defined one-time needs.
The CFPB small-business lending resources provide borrower guidance on understanding line of credit terms, complaint processes, and your rights as a small business borrower.