How does a business line of credit work?

A business line of credit is a revolving facility — draw what you need, repay it, and the credit restores automatically. Interest accrues only on the outstanding balance: bank lines price 8–16% APR (variable, tied to prime), non-bank fintech lines 18–35% APR, and idle capacity costs nothing.

The revolving structure

A line of credit gives you a credit limit — say $100,000 — that you can draw against in any amount up to the maximum, as often as you want. You repay what you've drawn, and the repaid amount becomes available to draw again. That's the 'revolving' part: the facility renews itself as you use and repay it, with no new application required for each draw.

Mechanics of a typical draw cycle

Approval. Lender approves you for a maximum credit limit (e.g., $100,000) based on revenue, time in business, and credit profile.
Draw. You request $20,000. Funds typically arrive in your business bank account within 1-2 business days.
Interest accrues. Interest accrues only on the $20,000 outstanding — not the full $100,000 limit. Most non-bank lines use simple-interest daily accrual; bank lines may use 30/360 or actual/365.
Repayment. You make monthly payments (interest + some principal) over a defined draw-payback period (typically 6-18 months at non-bank lenders). The business line of credit calculator shows the monthly payment and total interest at your draw amount and APR.
Capacity restores. As you repay principal, the credit becomes available to draw again. Repay the full $20K and your $100K capacity is fully restored.

Bank lines vs. non-bank fintech lines

Two distinct tiers with meaningfully different terms:

Bank lines — 8-16% APR variable, $50K-$500K typical limit, 2-6 week underwriting, 12-month revolving period with annual renewal, often require 680+ FICO + 2+ years in business + DSCR analysis. Variable rates anchored to the prime rate published in the Federal Reserve H.15 release (Prime + 1-7%).
Non-bank fintech lines — 18-35% APR (sometimes higher), $10K-$250K typical limit, 1-7 business day approval-to-fund, 6-18 month draw-payback periods, accept 600+ FICO + 1+ year in business + $15K+/month deposits. Pricing less tied to Prime, more tied to risk tier.
SBA-backed lines — SBA Express (capped at $500K, revolving up to 7 years) and SBA CAPLines (four specialized line structures) offer government-guaranteed alternatives at bank-tier pricing. Details at sba.gov/funding-programs/loans/7a-loans.

Variable rate vs. fixed rate

Most bank lines are variable rate — your interest rate moves with the Federal Reserve prime rate plus a spread. When Prime increases (or decreases), your APR follows. Non-bank fintech lines can be variable OR fixed — fixed is more common at the non-bank tier because the shorter draw-payback periods make rate volatility less impactful. Always confirm: variable lines that look cheap today can cost meaningfully more if Prime rises during your draw period. The Federal Reserve Small Business Credit Survey 2024 reports approval rates and pricing data across both tiers.

Fees that compound the headline rate

Three fee categories that change your effective cost meaningfully:

Draw fee — 1-3% per draw at many non-bank lenders. Compounds quickly if you draw frequently in small amounts.
Maintenance / unused-capacity fee — annual or monthly fee on the undrawn portion. Bank lines typically 0.25-0.5% annually on unused capacity.
Origination fee — one-time, 0.5-3% of the credit limit, typically deducted at funding.

Reset, renewal, and termination terms

Most lines have an annual review where the lender can reduce or freeze the line based on revenue, financial covenants, or general credit conditions. Bank lines often include explicit covenants (DSCR maintenance, max-total-debt thresholds); breach triggers a freeze. Non-bank lines usually have unilateral termination rights — the lender can close the line at any time with notice. Read the renewal + termination clauses before signing.

How to apply

Apply at Find my match — your file routes to ONE matched lender partner. See how to apply for a business line of credit for the document checklist + step-by-step application guide.

Authoritative sources

Federal Reserve H.15 release publishes the prime rate that anchors most bank-tier business line of credit pricing. Variable-rate lines typically price as Prime + 1-7%. — Federal Reserve H.15
Federal Reserve Small Business Credit Survey 2024 reports lines of credit are the second-most-applied-for SMB financing product. Bank approval rates: ~75%; non-bank online: ~50%. — Fed SBC Survey 2024
SBA Express lines (under the 7(a) program) carry a $500K cap with revolving credit up to 7 years — the SBA-backed alternative to bank or non-bank lines. SBA CAPLines offer four specialized variants (Seasonal, Contract, Builder's, Working Capital). — SBA.gov 7(a) program

Key takeaways

A business line of credit is revolving — draw, repay, redraw. Interest accrues only on outstanding balance.
Bank lines: 8-16% APR, slower (2-6 wks), tighter qualification (680+ FICO, 2+ years).
Non-bank lines: 18-35% APR, faster (1-7 days), broader qualification (600+ FICO, 1+ year).
SBA-backed lines (Express + CAPLines) offer government-guarantee at bank-tier pricing with $500K cap.
Watch fees: draw fees, maintenance fees, and origination fees can add 200-500 basis points to the effective rate.
Single-lender routing (ClearValue Lending) sends your file to ONE matched lender — one application, one matched lender.
Related: Business Line of Credit Requirements | FICO 600–649 business line of credit options | Restaurant business loan options