How a business line of credit works, what it costs, who qualifies, and when a line beats a term loan or working capital advance.
A business line of credit is the small business equivalent of a credit card on steroids: a lender approves you for a maximum credit limit, and you draw against it whenever you need capital. You only pay interest on what you've actually drawn, and as you repay you free the credit back up to draw again. Among standard products, lines are the most flexible — and that flexibility is the whole point.
When you're approved, the lender sets two numbers: a credit limit (the most you can have outstanding at one time) and a draw period (often 6, 12, or 24 months) during which you can pull cash. Each draw becomes a balance you repay, usually on a weekly or monthly schedule, while interest accrues only on the outstanding portion. Use the business line of credit calculator to see the monthly cost at your draw level under both interest-only and amortizing repayment.
The key behavioral difference vs. a term loan: with a line, you don't pay anything until you draw. The line itself can sit unused for months at zero cost (sometimes a small annual fee), then become a $50k bridge the day a customer pays late.
Pricing depends heavily on whether the line comes from a bank or a non-bank lender. As of 2026:
Lines of credit are stricter to underwrite than working capital advances because the lender is committing capital to a future draw they can't price for. Typical 2026 minimums:
Lines shine when your capital needs are recurring and unpredictable. Use cases where a line typically beats other products:
If your business has predictable, recurring capital needs and you can clear the qualification bar, a line of credit is usually the cheapest and most flexible option. ClearValue Lending routes your application to the funding partner(s) best matched for a line — and to the right alternative if a line isn't the fit. For the term-loan comparison, see Term loans vs. MCAs. For when to apply, see Timing your funding requests. To compare specific 2026 issuers and rates, see Best business lines of credit 2026.
When you're approved, the lender sets a credit limit and a draw period (often 6, 12, or 24 months). You draw against the limit when you need capital, and interest accrues only on the outstanding balance. As you repay, the credit becomes available to draw again. Unused lines typically carry no interest cost (sometimes a small annual fee).
A term loan delivers a single lump sum repaid over a fixed schedule. A line of credit is revolving — you draw only when needed, pay interest only on drawn balances, and the credit replenishes as you repay. Lines are better for variable, recurring needs; term loans are better for one-time lump-sum needs with a known payback timeline.
Typical 2026 minimums: 600+ FICO for online non-bank lines; 680+ FICO for bank lines. Most lenders also want 1+ year in business (2+ for banks) and $200K+ annual revenue. Final approval and credit limit are the lender's decision based on the full file.
Bank lines of credit typically price at 8-15% APR on drawn balances, often with a 1% origination fee and a small annual fee. Non-bank online lines run 12-40% APR with faster approval and more flexible underwriting. You only pay interest on what's actually drawn.
Lines are the right product when your capital needs are recurring and unpredictable — bridging gaps between customer payments, seasonal inventory cycles, payroll during slow weeks, or opportunistic moves you can't predict in advance. A term loan is cheaper when you need a single one-time lump sum.
Opening a line typically triggers a hard credit inquiry that can drop FICO 5-10 points temporarily. The line itself, if reported to credit bureaus, can help business credit history. Unused capacity generally doesn't hurt — what matters is whether you draw and how you manage the drawn balance.