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A business line of credit is a revolving line of credit that you can draw against whenever you need cash.
It works similarly to a credit card. Think of a business line of credit as a cushion for your business when you experience a slow season or an unexpected expense. You get a set credit limit and pay interest only on what you draw. Once you pay it back, your credit limit refreshes.
I've spent my career arranging financing for small- to midsize-business (SMB) owners in industries such as construction, trucking, and hospitality. Below, I'll get into the specifics on business lines of credit, how the draw and repayment cycle works, how it compares to a credit card and short-term business loan, and where to apply.
| How interest is charged | Typical cost | Best suited for | How you access funds | |
|---|---|---|---|---|
| Business line of credit | Only on the amount you draw, while it's outstanding | Starting at 6% APR | Recurring or unpredictable needs and cash-flow gaps | Draw from a set limit as needed, online or by transfer |
| Business credit card | On any balance you carry past the due date | Average of 19.32% | Small, everyday purchases you pay off each month | Swipe or charge up to your limit |
| Short-term business loan | On the full loan amount, across the whole term | Starting at 6% APR | A single, known, one-time purchase | One lump sum up front |
How a Business Line of Credit Works
How does a line of credit work? Let's go over the basics with an example.
A lender approves you for a business line of credit at a borrowing limit of $50,000 and a 12% interest rate.
You draw $5,000 from that credit line to cover a vehicle repair for your business and pay $2,000 before your payment due date. Much like a credit card, you'd owe interest on the outstanding balance of $3,000, which calculates out to roughly $30 for the month at a 12% annual percentage rate (APR).
Credit lines are revolving accounts, which means you can use them, pay them back, and borrow again anytime throughout the draw period. Any money that you pay back, you have access to again, unlike a short-term business loan where you receive a lump sum of money once and repay in installments.
Business lines of credit are a bit different from home equity lines of credit (HELOC) and personal lines of credit (PLOCs), although they're all types of lines of credit.
A business line of credit is approved based on your business. Lenders consider your revenue and time in business, and the funds must be used for business needs like payroll or inventory. By comparison, a HELOC is secured by the equity in your home, while a PLOC is usually unsecured and tied to your personal credit and income.
Terms vary based on the financial institution. You can get a business line of credit from a bank, credit union, or an alternative lender. Through Clarify Capital's lender network, business lines of credit run up to $5 million with repayment terms spanning six to 36 months. APRs start at 6%.
What a Line of Credit Costs Compared to a Card or Term Loan
Let's compare a business line of credit to a short-term business loan and a credit card.
First, let's look at a line of credit vs. credit cards. Business lines of credit and credit cards operate very similarly, but the biggest difference is cost.
Credit cards often have very high interest rates. The average APR for a credit card is 19.32% in August 2026, while business lines of credit range in APR from 6.99% to 28%.
A short-term business loan is a different type of financing. It's a lump sum of money that you use to cover a single, large expense. Then you pay back the loan in fixed installments over time. The average APR for a business loan at a bank ranges from 6.37% to 10.98%.
Here's how the math shakes out:
| Option | How interest applies | Interest |
|---|---|---|
| Business line of credit (12% APR) | Charged only on the ~$10,000 you carry | $1,200 for the year |
| Business credit card (22% APR) | Same $10,000 balance, higher rate | $2,200 for the year |
| Short-term business loan (10% APR) | Charged on the full $30,000 lump sum | $2,358 in the first year |
If you carry debt on a credit card, you'll end up paying much more in interest compared to a short-term business loan or a business line of credit.
Business lines of credit sometimes carry variable interest rates, or they move with the market. This means your interest rate goes up and down depending on a benchmark, usually the prime rate.
Short-term business loans typically have fixed interest rates, so the rate you get at the beginning is what you'll pay for the life of the loan.
Secured vs. Unsecured Lines of Credit
Revolving lines of credit are either secured or unsecured.
An unsecured line of credit is approved based on your revenue and credit history. A business line of credit or a PLOC is a common example of this type of credit line.
A secured line of credit, like a HELOC, is backed by collateral. This gives the lender something to fall back on if you're unable to repay. In the case of a HELOC, the collateral is your house. This means if you can't repay the credit line, the lender could seize your home.
Choosing Between a Line of Credit, a Credit Card, and a Term Loan
Choosing between a line of credit, a short-term business loan, and a credit card comes down to what you need.
Choose a line of credit
If you need recurring money to cover ups and downs, like slow months.
Choose a short-term business loan
If you have a one-time big expense, like buying a vehicle or covering construction costs.
Choose a business credit card
If you're covering small, everyday purchases like fuel and software. Or if you're looking for bonuses like cash back and travel rewards.
You don't have to choose just one. Plenty of business owners rely on business credit cards, revolving lines of credit, and short-term business loans when they need them.
I tell my customers to think realistically about their needs and the debt load they can take on before signing anything.
