A [PRIMARY_KW] is the most flexible form of business financing available. Unlike a term loan where you receive a lump sum and start paying interest immediately on the full amount, a line of credit lets you draw only what you need, pay interest only on what you have drawn, repay it, and draw again. For businesses with variable or seasonal cash flow, this flexibility has real financial value.
That said, lines of credit are not always the right tool. They are best for short-term, recurring needs — not for financing major long-term investments. Here is exactly how to use them effectively.
How a Business Line of Credit Works
The lender approves you for a maximum credit limit — say $150,000. You can draw up to that limit at any time. You only pay interest on the outstanding balance. As you repay the principal, your available credit replenishes. This revolving structure is what distinguishes it from a term loan.
Example: You have a $100,000 line. You draw $40,000 in March to cover a large inventory purchase. You repay $20,000 in April. Your available credit is now $80,000. You draw $30,000 in June for payroll. Your balance is $50,000. You are paying interest only on that $50,000 — not the full $100,000 limit.
Secured vs. Unsecured Business Lines of Credit
Unsecured Lines of Credit
No collateral pledged. The lender relies on your creditworthiness, business cash flow, and sometimes a personal guarantee. Most online lender products fall here. Rates: 8% to 24% for established businesses, higher for newer ones. Limits: typically up to $250,000.
Secured Lines of Credit
Backed by business assets — accounts receivable, inventory, equipment, or real estate. Because the lender has collateral, rates are lower and limits are higher. Asset-based lines of credit can go into the millions for large businesses. Rates: 6% to 16%. Best for businesses with substantial receivables or inventory.
Best Business Line of Credit Lenders (May 2025)
| Lender | Max Limit | Starting Rate | Min Time in Biz | Best For |
|---|---|---|---|---|
| Bluevine | $250,000 | 6.2% | 6 months | Newer businesses |
| OnDeck | $100,000 | Varies | 12 months | Speed and flexibility |
| Fundbox | $150,000 | 4.66% / 12 weeks | 6 months | Short-term gaps |
| Bank of America | $100,000+ | Prime + 1.5% | 2 years | Established businesses |
| Wells Fargo | $150,000 | Prime + 1.75% | 2 years | Existing WF customers |
Line of Credit vs. Term Loan: When to Use Which
Use a line of credit for: payroll gaps during slow seasons, bridging accounts receivable timing, opportunistic inventory purchases, unexpected short-term expenses, and recurring operational needs.
Use a term loan for: purchasing equipment, funding a specific renovation or build-out, a defined one-time expansion project, or any large purchase where you know exactly how much you need and do not need flexibility in drawdown timing.
The key distinction is certainty. If you know exactly what you need the money for and how much, a term loan is usually cheaper. If you need a financial cushion or have variable cash needs, a line of credit is the right tool. See our complete business loans overview for more context on all your options.
How to Qualify for a Business Line of Credit
Requirements vary by lender, but here are the common benchmarks: most online lenders require 6 to 12 months in business, $50,000 to $100,000 in annual revenue, and a personal credit score of 600 or higher. Banks typically want 2+ years, $250,000+ in revenue, and a 680+ score.
For larger secured lines, lenders will analyze your accounts receivable aging, inventory levels, and asset quality in addition to traditional creditworthiness metrics.