A business line of credit lets you borrow up to a set limit, repay, and borrow again, which makes it different from a one-time loan.
How a business line of credit works
With a business line of credit, a lender approves a maximum amount. You draw only what you need, pay interest on what you use, and the available amount refills as you repay. That flexibility suits uneven cash flow, such as buying inventory before a busy season or covering a gap while a customer pays an invoice. This is general information, not financial advice, and every lender sets its own terms.
Compare it with a term loan, which gives you a lump sum with a fixed repayment schedule. Our guide to business funding options places both in context.
- You borrow only what you need
- Interest applies to the balance you use
- Repaying restores the available amount
What it can cost
The cost of a business line of credit depends on the lender. Costs vary. Ask about the interest rate and whether it is fixed or variable, any origination or annual fee, draw fees, and penalties for late payment or for not using the line. Ask how the lender calculates the annual percentage rate so you can compare offers fairly. The Consumer Financial Protection Bureau offers plain-language guidance on borrowing and credit.
- Interest rate and how it can change
- Origination, annual and draw fees
- Late and inactivity charges
Who may qualify for a business line of credit
Lenders usually look at time in business, revenue, credit history and existing debt. A very new business may find approval harder, and some lenders ask for a personal guarantee, which means you are personally responsible if the business cannot repay. Read that clause carefully. If you are buying a business, our steps to buy a business explains how financing fits in.
- Time in business and revenue
- Personal and business credit
- Whether a personal guarantee is required
Smart ways to use it
A line works best for short-term needs you expect to repay soon, such as seasonal inventory, a temporary cash gap or a small, quick opportunity. It is a poor fit for long-term purchases that will not pay back quickly, because carrying a balance can become expensive. Use a business line of credit for timing, not to cover a loss.
- Seasonal inventory
- Covering a short wait for customer payments
- Small, time-sensitive opportunities
Where to look for one
Shop for a business line of credit in more than one place. Start with the bank where you keep your business account, since an existing relationship can help. Our guide on how to open a business bank account covers that first step. You can also compare credit unions and online lenders, and the SBA Lender Match tool can introduce you to lenders that offer SBA-backed products. Get at least two offers before you choose.
- Your current bank or credit union
- Online lenders, compared carefully
- SBA-backed options through Lender Match
Questions to ask before you sign
Ask for every fee in writing. Ask what happens if you miss a payment, whether the lender can lower your limit without notice, and how long approval and funding usually take. Be careful with anyone who guarantees approval, charges a large fee up front or pressures you to sign quickly. Our guide to business opportunity scams lists more warning signs.
- Total cost, not only the rate
- Whether the limit can change
- What happens if you miss a payment
Related reading on the business line of credit
- Business Funding Options: A Plain-English Guide for New Owners
- How to Open a Business Bank Account
- The Steps to Buy a Business: A Nine-Step Roadmap
- Business Opportunity Scams: 12 Red Flags to Check
- How to Evaluate Any Business Opportunity Before You Invest
- LLC vs. Sole Proprietorship: Setting Up Your Business Opportunity Correctly
- Consumer Financial Protection Bureau
- SBA Lender Match
- SBA loan programs
- SCORE free business mentoring
- America’s SBDC small business advising
