Business lines of credit

What is a business line of credit?

A line of credit works like a business credit card without the plastic. The lender approves a limit, you transfer what you need into your checking account, and you pay interest only on what is outstanding. As you repay, the room comes back. Bank lines are usually reviewed and renewed each year; online lines often treat each draw as a short loan repaid weekly over 6 to 24 months.

Lines can be secured by receivables, inventory or a blanket lien, or unsecured with a personal guarantee. If you are deciding between a line and a lump sum, start with loan versus line of credit.

Who qualifies for a line of credit?

Banks typically want two or more years in business, owner credit of 680 or higher, profitable tax returns and a DSCR above 1.25. They also want to see the line rested, meaning paid to zero for 30 days a year, which tells them you are not using it as permanent capital. Online lenders accept one year in business, a 600 score and about $10,000 a month in deposits.

• Declined most often: businesses under a year old, owners with recent late payments, and bank accounts showing frequent overdrafts.
• If your business is seasonal, a line is often the best fit; see seasonal business financing for how lenders size it.

What does a line of credit really cost?

Interest only applies to what you draw, so the cost depends on how you use it. A typical example: you have a $100,000 line at 14% APR and draw $40,000 for three months to cover a payroll gap. Interest is about $1,400. If the lender charges a 1.5% draw fee, add $600, and a bank may charge an annual fee of $150 to $500 whether you draw or not.

The trap is online lines quoted as a weekly fee rather than a rate. A draw that costs 2% a month sounds small and is 24% a year, before fees. Convert every offer to APR with our guide on APR versus factor rate, and avoid any line that charges on the full limit.

How do you qualify, and what documents do you need?

Online lenders usually need three to six months of bank statements, often by connecting your account directly, plus formation documents and an ID. Banks want two years of business tax returns, interim financial statements, an accounts receivable aging, a debt schedule and a personal financial statement for each 20% owner. Secured lines add inventory and receivable reports on an ongoing basis.

Gather everything from our document checklist before applying. For a bank line, the single most useful thing you can show is a receivable aging where most customers pay inside 60 days, because that is the collateral and the source of repayment at once.

How long does a line of credit take?

Online lenders typically approve in hours and fund the first draw in one to three business days. Banks typically take one to four weeks, longer if the line is secured by receivables and a field exam is needed. SBA Express lines run two to six weeks.

Once the line is open, draws are same day or next day. That is the real advantage: the slow part happens once, before you need the money. Owners who set up a line in a calm month and leave it unused are the ones who avoid an expensive short term loan when a gap hits.

When should you choose something else?

Choose a term loan for a single large purchase with a known cost, because a fixed payment over years is cheaper than keeping a line drawn to the limit. Choose invoice financing if the gap is specific unpaid invoices from strong customers; the advance rate is higher and approval depends on their credit, not yours.

Do not use a line as permanent capital. A line that stays maxed for a year signals to the bank that the business is underfunded, and the renewal is where that conversation happens. If you need long term money, borrow it long term.

How do you apply for a line of credit?

Apply once on this site and your application reaches banks, online lenders and SBA Express lenders that offer lines of credit to businesses like yours, so you can compare limits and APR in one place. It is free for your business, and we are paid the same whichever lender you choose. You can also ask your AI assistant to apply through our MCP server; it reads your bank statements, fills the application and submits it.