What a Business Line of Credit Actually Is
A business line of credit is revolving financing: you draw from it when you need cash, repay it, and draw again. Unlike a term loan, you are not borrowing a fixed amount upfront. You are approved for a credit limit (say, $75,000) and can access any portion of it at any time, paying interest only on what you have drawn.
The practical use case: your best client pays net-60. You have payroll due in two weeks. The line bridges the gap. You draw $30,000, pay your team, collect your receivable, and repay the line within 45 days: paying maybe $150-$200 in interest. That is the product working as intended.
Secured vs. Unsecured Lines of Credit
The most important distinction is whether the lender requires collateral. Secured lines of credit use assets, accounts receivable, inventory, equipment, real estate, as backing. They offer lower rates and higher limits but put your assets at risk if you default. Unsecured lines require no specific collateral but are based entirely on creditworthiness and typically carry higher rates and lower limits.
For most small businesses, the practical choice is an unsecured line from a bank or online lender. Secured lines become worth the paperwork at $200,000+ credit limits or when you have specific assets (like a large AR balance) that dramatically improve your rate.
Business Line of Credit Comparison: Bank vs. Online vs. SBA
| Option | Typical APR | Credit limit | Min. time in business | Approval time | Best for |
|---|---|---|---|---|---|
| Bank (traditional) | 8%–15% | $50K–$500K | 2+ years | 2–4 weeks | Established businesses with strong banking history |
| Online lender (Bluevine, Fundbox) | 15%–40% | $5K–$250K | 6–12 months | 1–3 days | Newer businesses needing fast access |
| SBA CAPLine | Prime + 2.25%–4.75% | Up to $5M | 2+ years | 30–90 days | Seasonal or cyclical businesses |
| Business credit card | 18%–28% | $5K–$50K | Any | Days | Small purchases, rewards earning, expense tracking |
| Invoice financing | 15%–35% effective | 80% of AR | 6 months | 1–5 days | Businesses with large, slow-paying invoices |
What Lenders Look at When You Apply
- Time in business. Banks want 2+ years. Online lenders will consider 6-12 months. Less than 6 months makes approval unlikely for any line of credit.
- Annual revenue. Most bank lines require $100K+ annual revenue. Online lenders typically start at $50K–$100K. Revenue consistency matters more than a single strong month.
- Personal credit score. For businesses under $1M in revenue, lenders nearly always pull the owner’s personal credit. A score under 650 will limit you to online lenders at higher rates.
- Business bank account history. Lenders look for positive average daily balances and low NSF incidents. Six months of statements is standard. Three months of strong performance after a rough patch may not be enough.
- Existing debt load. If your monthly debt service already consumes 40%+ of revenue, most lenders will decline regardless of other factors.
Comparing all your small business financing options before deciding?
