Understand how business lines of credit work, when to use them, and how they differ from other loan types.
A business line of credit works like a credit card: you get a credit limit (e.g., $50k-$500k), draw funds as needed, pay interest only on what you use, and repay to replenish available credit. Draw period: Use funds anytime (typically 1-2 years). Repayment: Minimum monthly payments (interest + principal) or interest-only during draw period. Interest rates: 8-25% APR (variable). Best for: Managing cash flow, covering seasonal gaps, unexpected expenses. More flexible than term loans since you only pay for what you use.
Lender approves you for a maximum credit limit (e.g., $50k, $100k, $500k) based on revenue, credit, and business health. You don't receive the money upfront—it's available to draw.
Learn about how to qualify for business loans.
During the draw period (typically 1-2 years), withdraw funds anytime via online transfer, check, or ACH. You only pay interest on what you use, not the full credit limit.
Example: $100k limit, draw $30k → pay interest only on $30k.
Pay minimum monthly payments (interest + principal) or interest-only during draw period. As you repay, available credit replenishes.
Example: Borrow $30k, repay $5k → $25k outstanding, $75k available.
After repaying, you can draw again up to your limit. This revolving feature makes it ideal for ongoing cash flow needs.
Draw, repay, and reuse funds multiple times. Unlike term loans, you don't need to reapply.
Interest charged only on outstanding balance, not the full credit limit. Lower cost if you don't use it all.
Minimum monthly payments during draw period. Can pay off early without penalty in most cases.
Most lines of credit have variable interest rates (8-25% APR) tied to prime rate or market rates.
| Feature | Line of Credit | Term Loan |
|---|---|---|
| Funds | Draw as needed | Lump sum upfront |
| Repayment | Revolving, reuse | Fixed monthly payments |
| Interest | Only on what you use | On full loan amount |
| Best For | Ongoing cash flow needs | Specific one-time purchases |
Learn more about line of credit vs credit card and business line of credit programs.
Credit limits typically range from $25k-$500k, depending on revenue, credit, and business health. Some lenders offer up to $1M+ for established businesses.
No. You only pay interest on funds you draw. Some lenders charge annual fees ($100-$500) to maintain the line, but no interest on unused credit.
Yes, most lines of credit allow early payoff without penalty. Paying off early frees up credit for future use.
You enter repayment period (typically 1-5 years) where you can no longer draw but continue repaying outstanding balance. Some lenders allow renewal or extension.
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