Overview

A business line of credit (LOC) is a flexible, revolving source of funds you tap as needed—similar to a business credit card but usually with higher limits and different pricing. Businesses use LOCs for payroll, inventory, bridging receivables, seasonal demand, or short-term working capital. In my 15+ years advising small businesses, I’ve seen LOCs prevent missed opportunities when timed to cash-flow cycles.

Key components of structure

  • Credit limit: maximum amount you can borrow. Limits vary widely by lender and underwriting.
  • Draw period: the span when you can withdraw funds (months to several years).
  • Repayment period: after the draw period you may face a repayment window or ongoing revolving access if renewed.
  • Interest: charged on outstanding balances; can be variable (indexed to prime or SOFR) or fixed.
  • Fees: may include origination, annual/maintenance, draw, unused-availability, and prepayment fees.
  • Collateral and guarantees: secured LOCs use business assets (receivables, inventory, equipment) and often require a personal guarantee and a UCC‑1 filing.

Types of business lines of credit

  • Secured LOC: Backed by collateral (accounts receivable, inventory, equipment). Typically lower rates and larger limits.
  • Unsecured LOC: No collateral required. More expensive and stricter credit requirements.
  • Bank revolving credit: Traditional banks offer competitive pricing for established businesses.
  • Online/alternative lenders: Faster funding but higher rates and shorter terms.

Typical costs (ranges as of 2025)

  • Interest rates: commonly range from roughly 6%–18% for secured bank lines and 10%–30% for unsecured or alternative lenders; exact pricing reflects credit, collateral, and term. Rates for variable products are often quoted as “Prime + X” or “SOFR + X.” (See SBA guidance on financing options: SBA — Loans & Grants).
  • Fees you may encounter:
  • Origination/setup fee: 0%–3% of the limit (or a flat fee).
  • Annual/maintenance fee: $0–$500+ depending on lender.
  • Unused-line or commitment fee: a percentage (e.g., 0.25%–1%) on the unused portion.
  • Draw fee: per withdrawal on some products.
  • Late payment/NSF fees.

Note: ranges are approximate—shop offers and read fee schedules carefully.

How lenders underwrite and price LOCs

Lenders look at: personal and business credit scores, time in business, annual revenue and cash flow, debt-service coverage, and collateral quality. Your personal credit profile often shapes pricing for small businesses—many lenders rely on business owner credit when the company is young (see: [How Your Personal Credit Profile Shapes Small-Business Loan Pricing](