Business Line of Credit for Small Businesses

How a business line of credit works

Once approved, you receive a limit — say $150,000. Draw $40,000 to buy inventory and only that $40,000 accrues cost. Repay it over the draw term, typically six to twelve months, and your available limit returns to $150,000. Most modern lines let you request a draw online with funds arriving the same or next business day.

Payments are usually weekly or monthly and cover both principal and interest on the drawn amount. Lines are periodically reviewed; consistent use and clean repayment usually lead to limit increases over time.

What a business line of credit costs

Lines are priced as an annual interest rate, or as a flat monthly draw fee. Typical online lines carry effective annualized costs from roughly 15% to 60% depending on credit, revenue and time in business; bank lines for strong, established borrowers price far lower.

Watch for three things: a draw fee charged each time you pull funds (commonly 1-3%), a monthly maintenance fee on an unused line, and any minimum draw requirement. A line with a slightly higher rate but no maintenance fee is often cheaper for a business that draws rarely.

Because you pay only on the balance outstanding, a line is almost always cheaper than a term advance for short, repeated needs — but more expensive if you draw the full amount and hold it for a year.

Who a line of credit fits

• Businesses with recurring but unpredictable gaps: payroll weeks, supplier deposits, repair bills.
• Companies with seasonal cycles that need capital for part of the year, not all of it.
• Contractors and service businesses funding materials before a progress payment arrives.
• Owners who want a standing backup rather than a one-time lump sum.

Who it doesn't fit

If you need a single, large, one-time amount for a specific purchase — an acquisition, a build-out, a truck — a term loan or equipment financing will almost always be cheaper and better structured.

A line is also the wrong answer if the underlying problem is a persistent shortfall rather than timing. Drawing a line every month and never paying it to zero means you are financing an operating loss, and the balance will only grow.

What you need to qualify

• Six or more months in business.
• $15,000+ in monthly revenue.
• 525+ personal FICO score.
• An active business checking account with consistent deposits.

Line of credit versus business credit card

Credit cards are excellent for small, frequent purchases with vendors that accept cards, and they may carry rewards and a grace period. Lines of credit are better for larger amounts, for cash needs like payroll, and for anything a card's limit or cash-advance pricing can't handle.

Many well-run businesses keep both: the card for everyday spend, the line for real capital needs.

Frequently asked questions

How is a line of credit different from a term loan?

A term loan gives you a single lump sum repaid on a fixed schedule. A line of credit is revolving: you draw as needed, pay only on the outstanding balance, and the limit becomes available again as you repay.

Do I pay anything if I don't use my line of credit?

Often nothing. Some facilities carry a small monthly maintenance fee. We confirm whether an unused line costs anything before you accept it.

What credit score do I need for a business line of credit?

FinFunders considers FICO scores from 525 upward. Higher scores, longer time in business and consistent deposits can produce larger limits and lower pricing.

How fast can I draw funds?

After the line is set up, draws are typically requested online and funded the same or next business day.

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