What is a business line of credit?
With a business line of credit — sometimes called a commercial line of credit — you receive access to a set amount of capital, say $150,000, and can draw funds as needed. You only pay interest on the funds that you draw. You then repay the funds over time, typically on a weekly or monthly schedule.
You can continue to draw on your business credit line as often as you’d like, as long as you make payments on time and don’t exceed your credit limit.
How does a business line of credit work?
Secured vs. unsecured business lines of credit
When comparing lenders, ask whether they require collateral, a personal guarantee or a lien so that you can find the option that’s best for your business.
Business line of credit vs. credit card
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Credit limit. Business lines of credit typically have higher credit limits than business credit cards.
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Functionality. Whereas credit cards are used for purchases, business lines of credit provide actual cash in your bank account when you make a draw. You can get cash from a credit card, but you’ll be charged a cash advance fee to do so.
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Collateral. Some lenders require you to secure your business line of credit with collateral. Business credit cards can be secured by collateral, but it’s not as common.
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Rewards. Business lines of credit don’t usually include rewards, whereas business credit cards often offer rewards or cash back for spending. Rewards are typically related to business expenses.
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Interest rates. Business lines of credit generally offer lower interest rates than credit cards. Business credit cards, however, may include a 0% interest promotion, which allows you to pay no interest on your balance for a specific period after signing up for the card. Lines of credit don’t offer this feature.
Overall, business credit cards tend to work best for smaller ongoing expenses and for newer businesses without established finances, while business lines of credit work best for larger ongoing expenses and more mature businesses.
Business line of credit rates and fees
🤓 Nerdy Tip
To get the best business line of credit rates, you can build your personal and business credit scores, provide collateral to secure your line and compare offers from several lenders.
Depending on your lender, you may also have to pay fees on your line of credit, such as:
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Origination fee. Fee charged to process your application. May be charged as a flat fee (e.g. $150) or a percentage of the line amount (e.g. 0.5% of the line amount).
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Account maintenance fee. Monthly or annual fee associated with managing your account and keeping your business line of credit active. Also may be charged as a flat fee or a percentage of the line amount.
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Draw fee. Fee charged each time you draw on your credit line. This fee is charged as a percentage (typically up to 2%) of the draw amount.
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Inactivity fee. A lender may charge this flat fee if you don’t draw from your line of credit within a specified period of time. Fee amount typically depends on the terms of your agreement.
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Minimum APR |
Maximum APR |
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|---|---|---|
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Bank of America Business Advantage Unsecured Line of Credit |
10.00%. |
Undisclosed. |
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Bluevine – Line of credit |
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Chase Business Line of Credit |
Variable rate based on the prime rate; specifics undisclosed. |
Variable rate based on the prime rate; specifics undisclosed. |
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Fundbox – Line of credit |
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Headway Capital – Line of credit |
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OnDeck – Line of credit |
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SBA CAPLines of credit |
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Wells Fargo BusinessLine® Line of Credit |
Pros and cons of business lines of credit
Good option for working capital, short-term expenses and emergency funding needs.
Only pay interest on funds you draw, not the total credit limit.
May be easier to qualify for than traditional term loans.
Can be used to build business credit.
Not suitable for large purchases or investments.
May include a variety of fees that can add to overall cost.
Often have shorter repayment terms and lower funding amounts than traditional term loans.
Where to get a business line of credit
Banks and credit unions
Banks and credit unions can offer different types of business credit lines, including secured and unsecured business lines of credit.
Although these lenders can offer business lines of credit with competitive interest rates, you’ll typically need to meet strict requirements to qualify. You’ll likely need to have strong revenue, good credit and several years in business.
Online lenders
Online lenders typically have streamlined application processes and fewer fees, and may be able to issue small-business lines of credit in a matter of days. However, these lenders are also likely to charge higher interest rates than banks and may have lower credit limits.
SBA lenders
How to get a business line of credit
To get a business line of credit, you can follow these steps:
1. Evaluate your financing needs
2. Review business line of credit requirements
Traditional lenders, like banks and credit unions, will likely have stricter qualifications, requiring multiple years in business and a strong credit history. Online lenders can be more lenient and some may be willing to work with startups and/or borrowers with bad credit.
At a minimum, you’ll want to be able to meet these business line of credit requirements:
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Credit score: 600 or higher.
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Time in business. Six months or more.
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Annual revenue. $50,000 or more.
3. Research and compare lenders
Ultimately, you can apply for a business line of credit through a bank, credit union, online lender, or even work with an online marketplace to submit a single application and compare offers from multiple lenders at the same time.
Interest rates, borrowing limits and qualifications can vary by lender.
4. Gather required documents and apply
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Personal and business tax returns.
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Personal and business bank statements.
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Business financial statements (e.g., profit and loss statement or a balance sheet).
You may also be required to provide physical collateral or sign a personal guarantee.
Depending on your lender, it may take anywhere from 24 hours to several weeks to complete the application and underwriting process.
5. Review your loan agreement and get funds
Once you’ve been approved, your lender will send you a business line of credit agreement to review and sign. You’ll want to review it thoroughly to make sure you understand all of the terms and conditions.
You might ask a business advisor or attorney to look over the document as well. If you have any questions or concerns, you should reach out to your lender for clarification before signing.
How to choose the right business line of credit
When trying to choose the best business line of credit for your needs, you’ll want to compare factors such as:
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Maximum funding amount. Some business line of credit lenders will offer credit lines of up to $100,000, whereas others will provide funding up to $1 million. If you think you need a large credit limit, bank or SBA lenders may be a better option — but will require you to meet strict qualifications. Keep in mind that many banks also offer commercial lines of credit, which are designed to meet the needs of mid-size, high-revenue businesses.
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Repayment schedule. Business lines of credit may require daily, weekly or monthly repayment. You should consider your budget and cash flow to determine the type of repayment you can afford.
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Interest rates. Bank- and SBA lines of credit will likely offer the best business line of credit rates, ranging from 10% to 19%. Online lenders may have higher rates, but will fund more quickly, with flexible qualification requirements. You should also consider whether a lender offers fixed or variable rates.
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Additional fees. Origination-, draw- and account maintenance fees can increase the overall cost of your business line of credit. You should make sure you understand any additional fees a lender charges and ask questions if the fees are unclear. You’ll also want to determine if the lender charges prepayment penalties for repaying early.
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Funding speed. If you need business capital quickly, you may be able to get it from an online lender in just a few days. Although traditional lenders may take anywhere from days to weeks to provide funding, you’ll likely get a lower interest rate with these options.
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Lender reputation. Reading online reviews or talking to other business owners can help you get a sense of what it may be like to work with a particular lender. Although there are many reputable online lenders, be wary of any company that offers “guaranteed approval” or makes similar promises that seem too good to be true.
Business line of credit calculator
When you draw from a business line of credit, you only pay interest on the funds that you borrow. You then repay the funds over time, based on a schedule set by your lender.
Enter a withdrawal amount, repayment term and annual interest rate to estimate your monthly payment, total interest costs and the total amount repaid.
Frequently asked questions
Business lines of credit may be available up to $500,000, but the amount that you can borrow ultimately varies based on your lender and qualifications. Online lenders typically have lower maximum funding amounts, whereas banks may not place specific limits on credit line funding. SBA lines of credit are available up to $5 million.
You may be able to qualify for a business line of credit from some online lenders with a minimum credit score of 600. You’ll typically need a stronger credit score — close to 700 or higher — to qualify for a credit line from a bank or credit union, however.
In general, the better your credit, the more options you’ll have available to you, and the lower interest rates you’ll be able to receive.
With more traditional lenders, on the other hand, it may take anywhere from several days to several weeks for you to get a line of credit.
