Business
Business Line of Credit: What It Costs and What to Check
Published September 24, 2026 · Last updated September 30, 2026
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The short answer
A business line of credit lets you borrow up to a set limit, whenever you need it. You only pay interest on what you use. When you pay it back, you can borrow again.
It works best as a safety net for uneven cash flow, not for big one-time purchases.
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How does a business line of credit work?
- You apply and the lender sets a credit limit.
- You draw money when you need it, up to the limit.
- You pay interest only on what you've drawn, not the full limit.
- You pay it down, and that money becomes available to borrow again.
- The line renews or ends after a set time. Many lines need to be renewed each year.
Here's an example with made-up numbers. You have a $50,000 line and draw $10,000 to cover a slow month. You pay interest only on the $10,000. When you repay it, you have the full $50,000 available again.
Business line of credit requirements
Lenders usually look at:
- Your credit. Both business and personal.
- Time in business and sales. Many lenders want a track record of steady revenue.
- Collateral, for a secured line.
- A personal guarantee. Most small business lines require one.
Secured vs. unsecured
A secured line is backed by collateral, like equipment, inventory, or unpaid invoices. It usually costs less and may have a higher limit. An unsecured line has no collateral, so it's often smaller and more expensive.
What affects your line of credit cost
Price range
Rates vary too much by lender and borrower to list one number. Most lines have a variable rate that moves with the market.
Not a quote, offer or approval. Your rate comes from the lender.
What moves the number
- Your credit.
- Time in business and sales.
- Secured or unsecured. Lines backed by collateral usually cost less.
- The lender. Banks and credit unions usually cost less than online lenders.
Fees to ask about
Some lines charge a fee to open the line, a yearly fee to keep it open, or a fee each time you draw money. Some charge a fee if you don't use the line at all. These can add a lot to the real cost.
Line of credit vs. business loan
Line of credit: borrow as you need, pay interest on what you use, reuse it. Good for cash flow gaps, seasonal stock, or surprise repairs.
Business loan: one lump sum with set payments. Good for one known cost, like a vehicle or an expansion.
What to ask before you choose
- "What's the rate, and is it variable?"
- "Are there fees to open it, keep it open, or use it?"
- "How long can I draw money, and when must I pay it back?"
- "Can you lower my limit or close my line?" Most lenders can, often without much warning.
- "Do I need a personal guarantee?"
The catch: lenders can shrink or freeze a line when times get hard. That's often right when you need it most. Keep some cash savings too, and apply for a line before you need it.
Keep reading
Compare business loans, working capital, and equipment financing.
Business financing: Small business loans · Equipment financing · Working capital · All business services
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