of small businesses applied for financing in 2023 — lines of credit were the most requested product
actual APR range from bank LOC to online lender — a 28-point spread that determines total borrowing cost
minimum time in business required by most bank lenders — online lenders extend to 6–12 months with higher rates
A business line of credit gives a small business access to a revolving pool of capital that can be drawn, repaid, and drawn again. Unlike a term loan, interest accrues only on the outstanding balance. A business that draws $20,000 from a $100,000 line pays interest only on the $20,000 until that amount is repaid. This structure makes a line of credit the right tool for managing cash flow gaps, covering payroll during slow seasons, or funding inventory purchases before a revenue event clears.
The practical challenge is cost. Bank LOC rates run 1.5 to 4 percentage points above prime, which puts them in the 8 to 12 percent APR range for qualified borrowers. Online lenders extend credit faster and with lower minimum qualifications, but the rate premium is substantial. A borrower who takes $50,000 from a 30 percent APR line of credit pays $15,000 per year in interest for a permanent draw — more than the equivalent of adding a part-time employee.
Business line of credit rates: what lenders actually charge
The chart below shows the approximate APR a qualified small business pays on a $50,000 draw from each lender’s standard credit line product. Bank rates assume strong credit (720+) and two or more years in business. Online lender rates reflect typical approval offers for businesses with 650+ credit scores and $250,000+ annual revenue.
Bank credit lines require 2+ years in business, 700+ credit score, and typically $250,000 or more in annual revenue. The approval process takes 2 to 6 weeks. Online lenders approve in 24 to 72 hours, accept lower credit scores, and offer lines to businesses with as little as 6 months of operating history. The trade-off is rate: the convenience premium runs 12 to 25 additional APR percentage points. A business that qualifies for a bank LOC should obtain one even if it does not plan to draw on it immediately.
Monthly interest cost calculator
Business line of credit vs other financing options
| Feature | Line of Credit | Term Loan | Invoice Factoring | MCA |
|---|---|---|---|---|
| Revolving (reusable) | ✓ | ✗ | ✗ | ✗ |
| Interest on drawn balance only | ✓ | ✗ | ✗ | ✗ |
| No collateral option available | ✓ | ~ | ✓ | ✓ |
| Approved with 6 months in business | ~ | ~ | ✓ | ✓ |
| Typical APR range | 8%–36% | 6%–30% | 15%–50% equiv. | 40%–150% equiv. |
| Best use case | Cash flow gaps, recurring needs | One-time investments | B2B invoice float | Emergency only |
A business carrying large accounts receivable from creditworthy B2B customers can access cash faster through invoice factoring than through a credit line, and at a comparable effective cost if the factoring rate is below 2 percent per 30 days. Factoring requires no personal credit score, no time-in-business minimum, and no interest accrual — the fee is paid once when the invoice clears. For businesses with 45- to 90-day payment terms and strong customer credit, factoring is worth modeling against a revolving line before committing to either.
Invoice factoring converts unpaid invoices into immediate cash without a credit line or collateral. The full comparison of rates, advance percentages, and approval requirements is covered in the guide below.
