Revolving credit you draw on demand, repay, and draw again. Only pay interest on what you actually use — the most flexible capital tool for managing cash flow.
A business line of credit grants you an approved credit limit you can draw from at any time. You only pay interest on what you borrow. As you repay, your available credit replenishes automatically — giving you a permanent, on-demand capital facility for any opportunity or unexpected need.
Line of credit pricing tracks WSJ Prime (currently 6.75%) plus a credit-dependent spread. Unlike term loans, LOC rates are almost always variable — the spread stays fixed but the underlying index moves. Below is the current market range.
| Tier | FICO | Typical Limit | APR (Variable) | Draw Fee |
|---|---|---|---|---|
| Bank Prime | 740+ | $50K–$500K | 9–13% | 0% |
| Strong Online | 680–739 | $25K–$250K | 12–19% | 0–2% |
| Mid-Tier | 650–679 | $10K–$100K | 17–25% | 1–3% |
| Sub-Prime | 600–649 | $5K–$50K | 22–36% | 2–5% |
| Specialty | 560–599 | $2K–$25K | 28–48% | 3–6% |
Rates vary based on credit profile, lender, and market conditions. Variable rates typically track WSJ Prime + spread. Some lenders charge a one-time origination fee (1–3%), monthly maintenance fee ($25–$95), or both.
"Line of credit" is a category, not a single product. The four variants below price differently, qualify differently, and fit different use cases.
Most common. Draw, repay, draw again — like a credit card. No collateral, but personal guarantee required. APR 12–25%. Limits typically $10K–$250K.
Best for: cyclical working capital, payroll bridges, opportunistic inventory buys.
Backed by AR, inventory, or real estate. APR 8–14%. Limits $100K–$5M+. Higher limits, lower rates, but underwriting takes 2–6 weeks and requires regular borrowing-base reporting.
Best for: established businesses with strong receivables, manufacturers, distributors.
Single draw at funding, then amortizes like a term loan. Used as a "draw-when-ready" structure for project-based work. Fewer lenders offer this; rates closer to term loan tier.
Best for: construction draws, multi-stage projects with known milestones.
Limit recalculated monthly based on AR aging and inventory levels (typically 70–85% advance rate on eligible AR, 40–60% on inventory). Lowest rates (Prime + 1–4%) but heaviest reporting burden.
Best for: $1M+ revenue businesses with concentrated AR — light manufacturing, wholesale distribution.
The fundamental LOC advantage: interest only accrues on drawn balance, not the full limit. Here's the math on a typical revolving LOC over 12 months — same scenario, different usage patterns.
| Scenario | Avg Drawn | Annual Interest | Effective APR |
|---|---|---|---|
| Never drawn | $0 | $0 + $300 maint. | N/A (insurance) |
| Drawn $20K avg | $20,000 | $3,300 + $300 | ~18% drawn / 3.6% commitment |
| Drawn $50K avg | $50,000 | $8,250 + $300 | ~17% drawn / 8.5% commitment |
| Maxed all year | $100,000 | $16,500 + $300 | ~16.8% drawn / 16.8% commitment |
Assumes 16.5% APR + $25/mo maintenance fee on a $100K limit. The takeaway: if your need is intermittent, an LOC is dramatically cheaper than a term loan. If you'll keep it maxed all year, a term loan at 13–14% APR would actually cost less. The break-even is typically 65–75% utilization — below that, LOC wins; above that, term loan wins.
Mechanically very similar — both are revolving credit you can draw, repay, redraw. Differences: LOC rates are typically 5–15 points lower than business credit cards (12–25% APR vs 18–30% APR). LOC limits are higher ($25K–$500K vs $5K–$50K typical). LOCs don't give cashback or rewards. LOCs draw via ACH transfer to your business account; credit cards swipe at point-of-sale. Use LOC for cash-needed-as-cash; use cards for purchases.
Most LOCs charge a monthly maintenance fee ($25–$95) regardless of utilization. Some charge an annual unused-line fee (0.25–0.50% of unused balance). Bank LOCs sometimes have no fees at all but usually require a depository relationship. Read the fee schedule carefully — "no draw fee" doesn't mean "no fee."
Yes — this is the dirty secret of LOCs. Lenders periodically review (typically annually) and can reduce limits or freeze the line if your credit deteriorates, revenue drops, or the broader credit market tightens. The 2023 banking stress saw thousands of LOCs frozen mid-year. Plan accordingly: don't rely on the LOC as your sole emergency liquidity. Asset-based LOCs (tied to AR/inventory) are most stable; unsecured online LOCs are most volatile.
Online lenders fund down to 600 FICO. Banks typically require 680+. Bank LOCs above $250K usually require 720+ and 3+ years in business. Specialty lenders go to 560 FICO at higher rates and lower limits ($5K–$25K).
Online unsecured LOCs: 1–5 business days from application to funded limit. Bank LOCs: 2–6 weeks. Asset-based LOCs: 4–8 weeks (require borrowing-base verification, AR aging audit). Once approved, draws are typically same-day or next-day to your business account.
Unsecured LOCs (most common, $5K–$250K) require no collateral but always require a personal guarantee. Secured LOCs ($100K+ typically) require collateral — AR, inventory, equipment, or real estate. Asset-based LOCs are entirely collateralized and the limit literally moves with the collateral value.
Most LOCs allow general business use, with a few exceptions: most can't be used to refinance other debt, can't be used for investment in real estate, and can't be used to fund another business or personal expenses. Asset-based LOCs are typically restricted to working capital tied to the asset (e.g., funding inventory purchases the AR will eventually pay for).
Use case decides it. Term loan = one-time, planned, large capital need with known amount. LOC = recurring, cyclical, or unpredictable working capital need. If you'll borrow $200K once for an acquisition, term loan. If you'll borrow $30K 4 times a year for inventory cycles, LOC. If you'll repay and re-borrow, LOC is structurally cheaper because interest only accrues on drawn balance.
Technically yes, practically rare. Most lenders won't approve a second LOC if you already have one open with sufficient capacity. They'll either decline or offer to refinance/consolidate. Exception: a bank LOC and a vendor-specific LOC (e.g., from a supplier) can coexist because they serve different functions.
Most LOCs report to D&B and Experian Business. On-time draws and full repayments build a positive business credit tradeline. However, missed payments report negatively too — faster than personal credit, since business credit reporting has fewer protections. The Paydex score component most affected by LOC behavior is "trade payment history."
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