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I work with seasonal businesses that struggle with cash flow gaps during downtime. Money comes in during the busy season, and then thins out by the time you need it for costs that can't wait, like payroll and inventory orders.
That's where business lines of credit come in. Instead of applying for new financing each time, these revolving credit lines let you draw, pay down the limit, and draw again. Below, I cover how a business line of credit works, what it costs, and how it compares to other financing.
If you already know you need a business line of credit, you can apply today.
| Option | How you draw money | How interest works | Best for |
|---|---|---|---|
| Business line of credit | Draw any amount up to your credit limit, as often as you need, and draw again after you repay | You pay interest only on your outstanding balance | Repeating, short-term cash needs like payroll gaps, inventory, and unexpected expenses |
| Short-term business loan | You get one lump sum up front | Interest applies to the full loan amount on a fixed repayment schedule | One-time costs with a known price, like an expansion or a large equipment purchase |
| Business credit card | Swipe the card for purchases up to your credit limit | Interest applies to balances you carry past the grace period, usually at higher rates than a line of credit | Everyday purchases you can pay off each month |
| Home equity line of credit (HELOC) | Draw against the equity in your home during a set draw period | Interest is usually variable and applies to the amount you draw | Business owners with home equity who want a larger line and accept putting their home up as collateral |
| Invoice factoring | Get an advance on unpaid invoices, then the rest, minus fees, once your customers pay | No interest rate. You pay fees of 0.5% to 5% of the invoice per month | Businesses waiting on slow-paying invoices from reliable customers |
| Merchant cash advance | Get one lump sum that you repay with a percentage of future sales | No interest rate. A factor rate of 1.08 to 1.45 sets your total repayment | Businesses with steady credit card sales that need cash fast |
How a Business Line of Credit Works
A business line of credit is a revolving credit line. It works similarly to a credit card. The lender approves you for a credit limit. Then you draw from it, repay it, and draw again. Your available credit is the limit minus what you owe right now.
Many lines have a draw period, a window when you can pull funds. After it ends, you can renew the line or repay the remaining balance on a schedule.
What a Business Line of Credit Costs
Interest is the main cost of a business line of credit. Let's say you draw $30,000 from a $100,000 business line of credit at a 12% APR. You'd pay about $300 in interest for a month if your balance stayed at $30,000. As you pay down the balance, your interest costs decrease.
Calculate the total interest on your business line of credit with the loan amount, interest rate, and loan term.
Lenders may also charge some of these fees, and the mix depends on the lender:
Origination fees
A one-time fee that you pay when the lender opens up your line of credit. It's usually taken as a percentage of your credit limit.
Draw fees
This is a fee you pay every time you pull money from the credit line.
Maintenance or monthly fees
Recurring charges to keep your line open. You pay this fee whether or not you use the line.
Annual fee
A yearly fee that some lenders charge to keep your line active.
Ask about fees before you sign and compare the total cost of the line alongside the APR.
How a Line of Credit Compares to Other Business Financing
A line of credit isn't the best fit for every need. Here's how it compares against other types of business financing.
Secured vs. Unsecured Lines of Credit
A secured line of credit requires collateral. A home equity line of credit (HELOC) is an example; it's secured by your home. Unsecured lines of credit don't require collateral. Instead, lenders approve them based on your revenue, cash flow, and creditworthiness. Lenders may still file a Uniform Commercial Code (UCC) lien, a public notice that the lender has a claim to your assets if you default.
Let's take a look at an unsecured line of credit and a HELOC to see how they compare:
| Feature | Business line of credit (unsecured) | HELOC (secured) |
|---|---|---|
| Collateral | Not required | Qualifying real estate (one to four units) |
| Credit line | Up to $5M | Based on available home equity, up to $750,000 |
| Rates | APRs starting at 6% | As low as prime |
| Repayment terms | 6 to 36 months | Up to 30 years, with a draw period of up to 5 years |
| Payments | Weekly or monthly | Monthly |
| Financing speed | As quickly as same day | As quickly as one week |
| What you'll need | 3 to 4 months of bank statements | Income verification, pay stubs, tax returns, and bank statements |
Business Line of Credit vs. Term Loan
A short-term business loan gives you a lump sum up front that you pay back on a fixed schedule. A line of credit lets you borrow a little bit at a time and pay interest only on what you use.
Here's how the two compare:
| Feature | Business line of credit | Short-term business loan |
|---|---|---|
| Structure | Revolving credit | Lump sum loan |
| Amount | Credit line up to $5M | $10,000 to $5M |
| Interest | Charged only on what you use | Charged on the full loan amount |
| Rates | APRs starting at 6% | APRs starting at 6% |
| Repayment terms | 6 to 36 months | 6 to 36 months, on a fixed schedule |
| Payments | Weekly or monthly | Weekly, biweekly, or monthly |
| Financing speed | As quickly as same day | As quickly as same day |
Business Line of Credit vs. Business Credit Card
These two financing options are the most similar on this list. They both give you revolving credit for purchases. The main differences show up in the interest rates, protections, and how you get the money.
| Feature | Business line of credit | Business credit card |
|---|---|---|
| Credit limit | Up to $5M through Clarify | Set by the card issuer |
| Interest rates | APRs starting at 6% through Clarify for qualified borrowers | Consumer credit card plans averaged 20.94% in Q2 2026 |
| How you use it | Cash goes to your business bank account, so you can pay rent, payroll, or vendors | Works for purchases wherever merchants take cards |
| Consumer protections | Set by your loan agreement | Most federal Credit CARD Act protections don't apply to business cards |
Business Line of Credit vs. Invoice Factoring
Invoice factoring works when your money is tied up in slow-paying invoices from reliable customers. It turns your unpaid invoices into quick cash. You get an advance on what your customers owe and the rest once they pay.
Here's how invoice factoring compares to a business line of credit:
| Feature | Business line of credit | Invoice factoring |
|---|---|---|
| Structure | Revolving credit | Accounts receivable financing |
| Amount | Credit line up to $5M | Advance up to 100% of invoice value |
| Cost | APRs starting at 6% | Fees from 0.5% to 5% per invoice per month |
| Repayment | 6 to 36 months | Tied to when your customer pays, typically 30, 60, or 90 days |
| Collateral | Not required | The invoice serves as the asset |
| Credit focus | Your credit score | Your customer's credit |
| Financing speed | As quickly as same day | 1 to 2 weeks |
Business Line of Credit vs. Merchant Cash Advance
Merchant cash advances (MCAs) give you a lump-sum advance that you repay with a percentage of your future sales. It doesn't use an interest rate. The cost comes from a factor rate, a number you multiply by the advance to get your total repayment. MCAs work best for businesses that do a lot of business with credit cards.
Here's how an MCA stacks up against a business line of credit.
| Feature | Business line of credit | Merchant cash advance |
|---|---|---|
| Structure | Revolving credit | Lump sum advance |
| Amount | Credit line up to $5M | Advance up to $5M |
| Cost | APRs starting at 6% | Factor rates from 1.08 to 1.45 |
| Interest | Charged only on what you use | Fixed cost on the full advance |
| Repayment | 6 to 36 months | No fixed term, with repayment length based on your sales |
| Payments | Weekly or monthly | Daily, weekly, or monthly |
| Financing speed | As quickly as same day | As quickly as same day |
