Business Line of Credit: Requirements & How to Qualify
A business line of credit gives you flexible access to funds—draw what you need, when you need it, and only pay interest on what you use. Here's how to qualify and choose the right option for your business.
Michael Chen, CFA
Business Finance Expert
Updated March 23, 2026 • 12 min read
Quick Answer
A business line of credit gives you access to a revolving pool of funds you can draw from as needed, only paying interest on what you use. Credit limits typically range from $10,000 to $250,000 for small businesses. Interest rates start at 7% from banks and range up to 25% from online lenders. Unlike a term loan, you can borrow, repay, and borrow again — making it ideal for managing cash flow gaps and unexpected expenses. To see what you qualify for, try our business loan calculator.
Line of Credit Benefits
Revolving
Reuse as you repay
Pay Interest Only
On amount drawn
$10K-$500K
Credit limits
Safety Net
For emergencies
How a Business Line of Credit Works
A business line of credit operates on a draw-and-repay cycle, similar to a credit card but with lower rates and higher limits. Once approved, you receive a maximum credit limit and can draw funds as needed — whether that's the full amount or just a portion.
The Draw/Repay Cycle
- 1Approval & Credit Limit — You're approved for a maximum amount (e.g., $100,000). No interest accrues until you draw funds.
- 2Draw Funds — You withdraw $30,000 for inventory. Your available credit drops to $70,000. Interest starts accruing only on the $30,000.
- 3Make Payments — You repay $10,000. Your available credit rises back to $80,000. Interest now accrues on just $20,000.
- 4Draw Again — Need another $15,000 for payroll? Draw it without reapplying. Your balance is now $35,000 and available credit is $65,000.
Payment Example: $50,000 Draw at 12% APR
If you draw $50,000 from your line of credit at 12% APR with interest-only payments:
- Monthly interest cost: $50,000 × 12% ÷ 12 = $500/month
- If you repay $20,000: Interest drops to $30,000 × 12% ÷ 12 = $300/month
- Principal + interest option: At a 24-month repayment, expect roughly $2,354/month (balance declines each month)
Compare this flexibility to a working capital term loan, where you pay interest on the full amount from day one.
Secured vs. Unsecured Lines of Credit
The choice between a secured and unsecured line of credit comes down to a tradeoff: lower rates and higher limits vs. no collateral risk and faster approval. Here's a detailed breakdown of each option.
Secured Line of Credit
Backed by business assets — real estate, equipment, inventory, or accounts receivable. The collateral reduces lender risk, unlocking better terms.
Pros
- Lower interest rates (7–15% APR typical)
- Higher credit limits ($50K–$500K+)
- Easier approval with weaker credit (620+)
- Longer draw periods and repayment terms
Cons
- Risk losing collateral if you default
- Appraisal and documentation process adds time
- May require business asset valuation ($500–$2,000)
Typical Requirements
- Credit score: 620+
- Time in business: 1+ year
- Collateral: Real estate, equipment, inventory, or AR
- Revenue: $100K+ annually
Unsecured Line of Credit
No collateral required — approval is based on creditworthiness, revenue, and business history. Lenders take on more risk, so they charge higher rates.
Pros
- No collateral required — assets aren't at risk
- Faster application and approval (24–72 hours)
- Less paperwork and documentation
- Good for businesses without significant hard assets
Cons
- Higher interest rates (13–25% APR typical)
- Lower credit limits ($10K–$150K typical)
- Requires stronger credit score (680+)
Typical Requirements
- Credit score: 680+
- Time in business: 2+ years
- Collateral: None
- Revenue: $150K+ annually
Line of Credit Requirements by Lender Type
Banks, online lenders, and credit unions all offer business lines of credit — but their qualification standards, rates, and approval speeds differ significantly. Use this table to find the lender type that matches your business profile.
| Requirement | Traditional Bank | Online Lender | Credit Union |
|---|---|---|---|
| Credit Score | 680+ | 600+ | 660+ |
| Time in Business | 2+ years | 6–12 months | 1–2 years |
| Annual Revenue | $250K+ | $50K–$100K | $100K+ |
| APR Range | 7–13% | 15–25% | 8–15% |
| Credit Limits | $50K–$500K+ | $10K–$250K | $25K–$250K |
| Approval Speed | 2–6 weeks | 1–3 business days | 1–3 weeks |
| Collateral | Often required | Rarely required | Sometimes required |
| Best For | Established businesses wanting lowest rates | Newer businesses needing fast access | Member businesses wanting competitive rates |
Line of Credit vs. Term Loan vs. Business Credit Card
Not sure which financing product is right for your business? Each serves a different purpose. A line of credit excels at ongoing, flexible access to capital. A term loan works best for one-time expenses with predictable repayment. A business credit card suits small, frequent purchases with rewards potential.
| Feature | Line of Credit | Term Loan | Business Credit Card |
|---|---|---|---|
| Structure | Revolving — draw and repay repeatedly | Lump sum with fixed repayment schedule | Revolving with monthly billing cycle |
| Typical APR | 7–25% | 6–30% | 15–26% |
| Typical Amount | $10K–$500K | $5K–$5M | $1K–$50K |
| Interest Charged On | Outstanding balance only | Full loan amount from day one | Outstanding balance after grace period |
| Repayment | Flexible — interest-only or principal + interest | Fixed monthly payments | Minimum payment or full balance |
| Best For | Cash flow management, recurring needs | Large one-time purchases, expansion | Small daily expenses, travel, rewards |
| Reusable? | Yes — funds replenish as you repay | No — must reapply for new funds | Yes — revolving like a LOC |
How to Improve Your Approval Odds
- Build business credit – Pay vendors on time, get a business credit card, and register with Dun & Bradstreet to establish a business credit file
- Increase revenue – Higher revenue qualifies you for larger credit limits and better rates
- Reduce existing debt – A lower debt-to-income ratio signals financial health to lenders
- Separate business finances – Maintain a dedicated business bank account with consistent deposits
- Improve personal credit – Pay down personal credit card balances below 30% utilization. If your score is below 680, explore options for bad credit business loans while you rebuild.