What is a business line of credit?
A business line of credit is revolving financing that lets you borrow up to a set limit, repay, and borrow again as needed—similar to a business credit card but with higher limits and better rates. You only pay interest on what you actually draw, not the full credit limit. Current rates range from 6.47% to 60%+ APR depending on creditworthiness. Credit limits typically span $10,000-$5 million, with most lenders requiring 600+ credit scores, 6-12 months in business, and $100,000+ annual revenue.
Your equipment breaks down on Tuesday. A major client pays 45 days late. Seasonal inventory needs funding next month. Cash flow gaps like these hit 82% of small businesses, yet most operate without flexible financing to bridge these temporary shortfalls. The difference between weathering these challenges and missing growth opportunities often comes down to having access to working capital when you need it.
Average rates for new business lines of credit in Q4 2024 ranged between 6.47% to 7.06% for fixed-rate lines and 7.39% to 7.92% for variable-rate lines, making them competitive financing options for established businesses. But rates can climb much higher depending on your credit profile, lender type, and whether the line is secured or unsecured.
This guide breaks down everything you need to know about business lines of credit in 2025. You’ll discover how these credit lines work, what they actually cost, who qualifies, and when they make more sense than traditional term loans—plus the mistakes that can turn flexible financing into an expensive trap.
How Business Lines of Credit Actually Work
Think of a business line of credit like a water reservoir you can tap whenever needed. The lender approves you for a maximum credit limit—say $50,000—but you’re not required to use the full amount. You draw funds as needed, pay interest only on what you borrow, and your available credit replenishes as you make payments.
This revolving structure sets lines of credit apart from traditional loans. With a straight term loan, you receive the entire amount upfront and pay interest on the full sum starting on Day One. With a line of credit, your business has flexibility to choose when and how much capital to use. If you draw $5,000 from a $50,000 line, you’re only paying interest on that $5,000—not the entire credit limit.
Most business lines of credit operate on draw periods lasting 12-24 months, during which you can repeatedly borrow and repay. Interest begins accruing immediately when you take a draw, calculated daily on your outstanding balance. Payments are typically due monthly, though the amount varies based on how much you’ve borrowed. Some lenders require you to pay your balance down to zero annually, ensuring the line gets used for short-term needs rather than permanent financing.
Access to your funds happens through multiple methods: checks linked to your credit line, online transfers to your business checking account, or sometimes debit cards. Most lenders can provide same-day or next-day fund transfers once your account is set up. This immediacy proves valuable when opportunities or challenges arise without warning.
What You’ll Actually Pay: Rates and Fees Breakdown
The cost of a business line of credit extends beyond the advertised interest rate. Understanding the complete expense picture helps you compare options accurately and avoid surprises.
Business line of credit APRs can range from three percent all the way up to sixty percent or higher. Where you land in that massive range depends primarily on your credit profile and the lender type. Traditional banks offer the lowest rates but require strong credentials—think credit scores above 680, two years in business, and substantial revenue. Bank of America’s rates start as low as October 1, 2025, are subject to change, and actual rates differ based on creditworthiness, overall business relationship, and line amount.
Online lenders accept riskier borrowers but charge significantly higher rates, often 14-60% APR. The tradeoff comes down to accessibility versus cost. A startup with fair credit might only qualify with an online lender at 35% APR, while an established business with excellent credit could secure a bank line at under 10% APR.
Beyond interest rates, several fees affect your total cost. Annual fees are flat charges, usually under $200, that businesses may be charged each year to keep lines of credit open. Wells Fargo charges $95 annually (waived first year) for lines between $10,000-$25,000, or $175 (waived first year) for lines exceeding $25,000. Origination fees typically run 1-3% of your credit limit, though not all lenders charge them.
Some lenders charge weekly or monthly fees on outstanding balances instead of traditional interest rates. These fees can actually cost more than loans with stated APRs because they don’t account for annualized costs. Always compare the total dollar amount you’ll pay, not just the percentage rate, when evaluating offers.
Qualification Requirements That Actually Matter
Getting approved for a business line of credit requires meeting lender-specific criteria that vary considerably between institutions. Understanding these benchmarks helps you target appropriate lenders and strengthen weak areas before applying.
Personal credit scores represent the most common requirement, with minimums ranging from 600 at online lenders to 700+ at traditional banks. Why personal credit when you’re borrowing for your business? Most small business lines require personal guarantees, meaning you’re personally responsible if your business defaults. Wells Fargo BusinessLine accounts require personal guarantees from any owner with 25% or more ownership, with a minimum combined aggregate of 51% ownership, and guarantors typically have FICO Scores of at least 680.
Time in business affects approval odds significantly. Fundbox accepts businesses as young as six months old with $100,000 annual revenue, while Wells Fargo and Bank of America require at least two years in business. Newer businesses face higher rates and lower credit limits due to their unproven track records. If you’re just starting out, expect to begin with smaller lines—perhaps $10,000-$25,000—and grow your credit limit as you establish payment history.
Revenue requirements range from $100,000 annually at lenient online lenders to $250,000+ at traditional banks. National Funding requires applicants to have at least $250,000 in annual revenue and need to have been in business for at least six months, with personal credit scores of at least 660. Lenders want confidence that your business generates enough income to service debt obligations even during slower periods.
Many lenders also evaluate your debt-to-income ratio, looking at how much your business already owes compared to what it earns. High existing debt loads make approval harder, as lenders worry about your ability to manage additional obligations. Keeping your debt service below 40% of gross revenue generally positions you favorably.
Secured vs Unsecured Lines: The Critical Trade-off
The secured versus unsecured decision fundamentally affects both your borrowing costs and risk exposure. Each structure serves different business situations.
Unsecured lines of credit require no collateral, making them accessible to businesses lacking substantial assets. Many lines of credit are unsecured, making them more accessible to small businesses and startups that lack substantial assets. While an unsecured line may require the owner to make a personal guarantee, there’s no need to have an item of value to secure the credit. The absence of collateral requirements speeds up the application process—no appraisals, no lien filings, no complex documentation about asset values.
But that convenience comes at a cost. Unsecured lines typically carry higher interest rates because lenders face greater risk without collateral backing the loan. Credit limits also tend to be lower, often capping at $150,000-$250,000. Bank of America’s unsecured business lines start at $10,000, while secured lines begin at $25,000 with potentially higher limits.
Secured lines require collateral—accounts receivable, inventory, equipment, or commercial real estate—which the lender can claim if you default. Secured business lines of credit typically offer an interest rate discount due to the security of collateral. In most cases, the credit limit for a secured credit line is based on the value of collateral that has been pledged as security. You might borrow up to 80% of your accounts receivable value or 50% of inventory value, depending on lender policies.
The collateral decision involves weighing lower costs against increased risk. If your business struggles and you default on a secured line, you could lose critical assets like equipment or inventory, potentially forcing closure. Unsecured lines protect your physical assets but cost more month-to-month. Choose based on your confidence in repayment ability and whether you can afford the higher unsecured rates.
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When Lines of Credit Beat Term Loans
Both financing tools serve valuable purposes, but using them interchangeably costs you money. Understanding when each makes sense prevents expensive mistakes.
Lines of credit work best for working capital needs, operating expenses, covering short-term cash flow gaps, managing seasonal revenue fluctuations, and handling unexpected expenses. Picture a landscaping company that needs to purchase materials in spring before clients pay invoices, or a retailer stocking inventory for the holiday season. These businesses know they’ll need funds but can’t predict exact amounts or timing—perfect scenarios for revolving credit.
Term loans serve different purposes. If you need a one-time investment like purchasing equipment or acquiring a building, a term loan is usually the better option due to its lower interest rate and structured repayment. The fixed payment schedule and typically lower rates make term loans ideal for assets that generate returns over years, not months.
The mistake many business owners make? Using lines of credit for long-term expenses. While it may seem convenient, the higher interest rates and variable nature of a line of credit can lead to higher overall costs. If you’re financing something that will take five years to pay off, a term loan’s lower rate saves thousands despite the line’s flexibility.
Similarly, avoid using term loans for short-term operational costs. Those fixed monthly payments create unnecessary strain when you need funds flexibly. A better approach: maintain both financing types. Use your line of credit for day-to-day cash flow management and term loans for major purchases. Many successful businesses run this dual structure, optimizing their borrowing costs while maintaining operational flexibility.
Comparing Top Business Line of Credit Lenders
Lender selection dramatically affects your costs, experience, and likelihood of approval. Different institutions specialize in serving different business profiles.
Traditional banks offer the most competitive rates but enforce strict requirements. Bank of America offers interest rates starting at just 9.25% for unsecured lines of credit, providing highly competitive terms along with valuable face-to-face guidance at branch locations. However, personal credit above 700 FICO Score is typically required, along with at least 2 years in business under existing ownership. If you meet their criteria, banks provide the best deal.
Wells Fargo won the 2025 award for best small business lender for those with good-to-excellent credit, offering competitive interest rates and a wide range of loan amounts for secured and unsecured lines of credit. Wells Fargo’s unsecured lines range from $10,000 to $150,000, with rates between Prime + 1.75% and Prime + 9.75% depending on personal and business credit evaluation. With the Prime Rate at 7.00% as of October 30, 2025, qualified borrowers pay 8.75-16.75% APR.
Online lenders like Bluevine, Fundbox, and OnDeck sacrifice rate competitiveness for accessibility and speed. OnDeck, the 2025 award winner for startups, offers flexible short-term lines of credit with terms as short as 12 months and amounts as high as $100,000, requiring minimum personal credit scores of 600, at least 1 year in business, and minimum $100,000 annual revenue. Applications process in minutes rather than weeks, with funding in 1-3 business days.
Fundible won Bankrate’s 2025 award for best business line of credit overall, balancing accessibility with reasonable terms. When choosing between lenders, prioritize this hierarchy: first, ensure you meet eligibility requirements. Second, compare total costs including fees, not just interest rates. Third, evaluate funding speed against your timeline. Fourth, consider the lender relationship value—working with your existing bank often provides benefits beyond just the credit line.
Application Process and Required Documentation
Understanding what lenders need streamlines your application and improves approval chances. Preparation separates quick approvals from drawn-out rejections.
Most lenders require comprehensive financial documentation. Expect to provide three years of business tax returns, personal tax returns for all owners with 20%+ ownership, and current financial statements including profit and loss statements and balance sheets. Lenders might also consider your personal and business credit scores, how long you’ve been in business, your revenue, and your debt-to-income ratio.
Business and personal identification rounds out the package: business licenses, articles of incorporation, ownership structure documents, and personal identification for all guarantors. If you’re seeking a secured line, prepare documentation about your collateral—equipment lists with values, real estate appraisals, or aging reports for accounts receivable.
Your business plan matters more than many applicants realize, especially for newer companies. Lenders want to understand your business model, competitive position, and growth strategy. Generic templates get rejected; detailed, realistic plans demonstrating market understanding and clear repayment ability win approvals.
The application timeline varies dramatically by lender type. Online lenders often provide responses within 24-48 hours, sometimes funding within three business days. Traditional banks take longer—two to six weeks for full underwriting and approval. Fundbox offers approvals in as little as three minutes with funds available as soon as the next business day. Plan accordingly based on how urgently you need funding.
Some lenders allow prequalification with soft credit inquiries, letting you compare offers without affecting your credit score. Take advantage of this when shopping—multiple hard inquiries within short timeframes can temporarily ding your score 5-10 points each.
Common Mistakes That Make Lines of Credit Expensive
Even with competitive rates and good terms, certain behaviors transform affordable financing into costly traps. Avoiding these mistakes protects your business finances and credit.
Treating your line of credit like permanent capital ranks as the most expensive error. Because a line of credit makes it easy to access and borrow money, it can be tempting to overuse it. Borrowing too much can cause financial strain affecting your ability to repay. Lines work best for temporary needs—inventory purchases you’ll sell within 90 days, not ongoing operational losses you can’t cover with revenue.
Maintaining high utilization damages both your costs and credit profile. Even if you’re making minimum payments, keeping your line near its limit signals financial stress to credit bureaus. This can reduce your business credit score and make future financing harder to obtain. Try to keep utilization below 30% of your credit limit when possible, paying down balances quickly after drawing funds.
Missing payments or making late payments devastates your financial standing. Missing payments can damage your credit score and affect your overall creditworthiness. Beyond credit score impacts, many lenders impose default interest rates—often 5-10 percentage points higher than your original rate—if you become delinquent. What started as an 11% line suddenly costs 20%+.
Failing to communicate with your lender when problems arise makes situations worse. If you’re facing temporary cash flow challenges that might delay a payment, contact your lender immediately. Many will work with you—extending payment dates, adjusting terms, or providing other accommodations—rather than declaring default. Silence guarantees the worst outcome; communication often finds solutions.
Drawing funds without clear repayment plans creates debt spirals. Before each draw, identify specifically how and when that money will generate revenue to repay what you borrow. Vague plans like “we’ll use it for operating expenses” lead to permanent balances you can never pay down. Specific plans like “purchasing $10,000 in inventory we’ll sell within 60 days at 40% margin” create natural repayment timelines.
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Maximizing Value From Your Business Line of Credit
Strategic use of your credit line amplifies its benefits while minimizing costs. These practices help you extract maximum value from your financing.
Reserve your line for true working capital needs, not long-term investments. The perfect uses: bridging gaps between when you pay suppliers and when customers pay you, covering payroll during slow months, purchasing seasonal inventory, or seizing time-sensitive opportunities like bulk purchase discounts. Each of these generates returns within weeks or months, allowing quick payoff.
Build business credit separately from personal credit by ensuring your line reports to business credit bureaus. This separation protects your personal credit profile while establishing your company’s independent creditworthiness. Over time, strong business credit lets you access larger amounts at better rates without personal guarantees. Starting your business credit profile early creates a financial cushion between your personal assets and your company’s liabilities, typically requiring 12-18 months of consistent on-time payments across multiple credit accounts to build a strong profile.
Pay down balances quickly to minimize interest charges. Since interest accrues daily on outstanding amounts, even a few extra days of borrowing costs money. When revenue hits your account, immediately pay down your line rather than letting those funds sit. The interest you save exceeds any interest your checking account might earn.
Review your credit limit annually and request increases as your business grows. Higher credit limits improve your utilization ratio even if you don’t use the additional capacity. They also provide greater cushion when unexpected opportunities or challenges arise. Most lenders review accounts every 12-18 months, potentially offering increases to customers with strong payment histories.
Frequently Asked Questions
What credit score do I need for a business line of credit?
Credit score requirements vary significantly by lender, ranging from 600 at online lenders to 700+ at traditional banks. OnDeck accepts personal credit scores as low as 600, while Bank of America typically requires scores above 700. Your score affects not just approval but also your interest rate—the difference between a 640 and 720 score could mean 10+ percentage points in APR. If your score falls below lender minimums, consider applying with a cosigner who has stronger credit, offering collateral for a secured line, or working with online lenders that emphasize revenue and time in business over credit scores. Alternatively, spend 6-12 months improving your credit before applying for better terms.
How is a business line of credit different from a business credit card?
Both provide revolving credit, but business lines of credit typically offer higher credit limits ($50,000-$5 million versus $5,000-$50,000 for cards), lower interest rates, and fewer restrictions on how you use funds. Credit cards excel for everyday purchases under $5,000, offering purchase protection and rewards programs. Lines of credit and credit cards are revolving lines of funding, allowing you to withdraw funds as needed up to the credit limit. Business credit cards may also come with 0% APR promotional periods and the chance to earn rewards on purchases. Choose credit cards for routine business expenses where you’ll pay the balance monthly. Use lines of credit for larger working capital needs like payroll, rent, or inventory purchases where you need several months to repay.
Can startups qualify for business lines of credit?
Yes, though options are more limited and expensive than for established businesses. Fundbox Line of Credit is ideal for startups because it doesn’t require at least one or two years in operation for approval, accepting businesses as young as six months old with $100,000 annual revenue and personal credit scores of 600 or more. Expect lower credit limits ($10,000-$50,000), higher interest rates (20-40% APR), and requirements for personal guarantees. Many startups begin with secured lines backed by equipment or inventory, graduating to unsecured lines after 12-24 months of payment history. Alternative options include SBA microloans, business credit cards, or invoice factoring while you build the track record traditional lenders require.
