Financing Guide
Business Line of Credit
Reviewed and updated 2026-05-25 · Figures are dated industry references, not offers of credit
A business line of credit is a revolving facility a business can draw from, repay, and reuse — paying interest only on the drawn balance, not the total line. Bank lines on strong credits typically price at Prime plus a spread of 1% to 6% — high single digits to the mid-teens — and take weeks to underwrite. Non-bank and fintech lines fund in days but commonly cost 15% to 40% APR or more once fees are annualized. The product is built for timing problems, not for project financing.
How a business line of credit actually works
Revolving structure
A line of credit is approved up to a stated limit. The borrower draws against it as needed, repays the drawn balance on a schedule, and then has that capacity available to draw again. The defining feature is that interest accrues only on what is drawn, not on the full line. A $250,000 line that the business never touches usually costs nothing in interest — and on a bank facility may carry an unused-line fee on the undrawn portion, but typically a small one. The economics fit cash-flow timing problems: payroll lands before the customer payment clears, an order needs to be filled before the deposit arrives, a slow week interrupts an otherwise healthy operation.
Bank lines vs. non-bank and fintech lines
These are different products that share a name.
- Bank lines typically run $250,000 to $1,000,000+ for bank lines on qualifying credits. Pricing is prime + 1% to 6% for bank lines on strong credits — generally landing in the high single digits to mid-teens apr. Underwriting takes weeks — full financials, tax returns, often collateral and covenants. Once the line is in place, draws fund quickly and pricing tracks Prime as it moves.
- Non-bank and fintech lines are sized smaller (typically $10,000 to $250,000 typical for non-bank and fintech LOCs), underwrite primarily on revenue and bank statements, and fund within days. Pricing reflects the speed and looser qualification: 15% to 40% apr for non-bank and fintech locs, often quoted as a weekly or monthly fee that annualizes higher than a borrower expects. The stated rate is often a weekly or monthly fee — always annualize before comparing to a bank quote.
Fees that change the total cost
Common fees include an annual maintenance fee, a per-draw fee, and on bank facilities sometimes an unused-line fee charged on the undrawn portion. Total fees can be material on a small line — read the fee schedule alongside the rate. On a small line, $50 per draw plus a $150 annual maintenance fee can materially exceed the interest cost itself. The rate alone is not the price — the fee schedule has to be read with it.
Who a line of credit fits
- Businesses with seasonal or lumpy cash flow that need a standby facility to bridge timing gaps
- Owners managing accounts-receivable timing — covering payroll or inventory while customer payments are in transit
- Established businesses that want a pre-approved facility on hand for opportunities or emergencies, used only when needed
- Borrowers with bank-quality credit who can access bank-priced lines, where the cost of carrying an unused line is low
When a line of credit is the wrong choice
A line of credit is a precision tool for timing problems. It is not the right tool when:
- The need is a one-time capital project with a defined payback horizon — a term loan is usually cheaper and structurally cleaner than carrying a line at near-maxed utilization
- The borrower expects to keep the line maxed out for years — at that point the LOC is functioning as a term loan, usually at a higher rate, with maintenance fees on top
- Maintenance, draw, or annual fees on a small line eat the cost advantage over a one-time term loan
- The business is too new to qualify for a real revolving line and is being offered an MCA marketed as a 'line of credit' — those are not the same product, regardless of what the term sheet calls it
How PMF fits in
Premium Merchant Funding, which publishes this site, places business lines of credit across both bank and non-bank lender programs and can help a borrower figure out which side of that divide they actually qualify for — and whether a line of credit is the right product for the situation in the first place, or whether a term loan, SBA loan, or different structure fits better.