A business line of credit is a revolving credit facility: a lender approves you for a set limit, you draw what you need, repay it, and the available balance resets. Interest accrues only on the amount actively drawn, not the full limit. It is one of the most flexible financing tools available to small businesses and the most commonly applied for: 37% of small businesses sought a line of credit in 2024, according to the Federal Reserve's Small Business Credit Survey.

This guide covers how revolving credit works, the difference between secured and unsecured options, what it costs, how to qualify, and when a line of credit fits better than a term loan.

What is a business line of credit?

A business line of credit is a revolving pool of financing with a set credit limit (say $50,000 or $250,000) that you can draw against, repay, and draw from again. Think of it as a financial safety net that stays available for ongoing use rather than a one-time infusion of cash.

This is different from two other common products. A term loan disburses a lump sum upfront and requires repayment of the full amount on a fixed schedule, with interest charged on the outstanding balance regardless of how much you've spent. A business credit card is also revolving but typically comes with smaller limits, higher APRs when carried month to month, and spending that stays on the card rather than landing directly in your business bank account.

A line of credit sits between those two options: more flexible than a term loan, generally lower-rate and higher-limit than a credit card, and designed for situations where funding needs are recurring or unpredictable rather than a single known event.

How a business line of credit works

Revolving funds

The revolving mechanic is the defining feature. You are approved for a credit limit, draw funds up to that limit, repay what you've borrowed, and the available balance replenishes. There is no need to reapply each time you need capital, which is what makes a line of credit more useful than a series of individual term loans for ongoing or variable cash needs.

Interest costs

Interest accrues only on the amount actively drawn, not on your total approved limit. If your limit is $100,000 and you've drawn $20,000, you pay interest on $20,000. Rates are typically variable, tied to the prime rate plus a lender margin, and currently range from roughly 8% to 15% at traditional banks to 10% to 60%+ at online lenders, depending on your credit profile and the lender.

How to access funds

Draws are made through an online banking portal or mobile app, with funds transferred directly to your linked business checking account. Some lenders issue a dedicated draw card or provide access via ACH transfer. Unlike a credit card where spending happens at point of sale, a line of credit puts cash in your account, giving you the flexibility to use it for payroll, vendor payments, or any other business expense.

Draw period and repayment

Most lines have a draw period of 12 to 24 months, sometimes longer for bank lines, during which you can pull funds as needed up to your limit. Some lenders structure each draw as its own mini-loan with its own repayment term (commonly 6 to 24 months per draw); others let you carry a revolving balance with minimum payments, similar to a credit card, with principal due at renewal. Repaying drawn amounts promptly resets your available balance and keeps interest costs low.

Secured vs. unsecured business lines of credit

The choice between secured and unsecured affects your interest rate, your credit limit, and what happens if your business cannot repay.

• Secured lines of credit require collateral: accounts receivable, inventory, or other business assets. The collateral gives the lender recourse if you default, which reduces their risk. In practice, this translates to lower interest rates and higher credit limits. If your business has substantial receivables or inventory, pledging them can lower your rate by several percentage points and meaningfully increase the limit a lender will offer.

• Unsecured lines of credit do not require specific collateral but almost always require a personal guarantee, meaning you are personally liable if the business cannot repay. Unsecured lines are more accessible for businesses that lack pledgeable assets, but lenders compensate for the higher risk with higher rates and lower initial limits.

Common uses for a business line of credit

A business line of credit is built for short-term, recurring, or unpredictable cash needs. Trying to use one for a large, one-time purchase or to cover structural operating losses is the wrong tool for the job. These are the situations where it earns its keep.

Cash flow gaps 

If customers pay on 30-, 60-, or 90-day terms but payroll and rent are due monthly, a line of credit bridges that timing mismatch without requiring a new loan application every quarter. This is the most common use case and the one the product is specifically designed for. Finance teams using BILL Accounts Payable to automate and schedule vendor payments get earlier visibility into upcoming obligations, which means knowing in advance when a gap is forming rather than reacting to it after the fact. That foresight determines whether you draw from your line proactively or let it sit untouched.

Inventory purchases

Retailers and product businesses can draw down ahead of a busy season or a bulk supply deal and repay once revenue arrives. Having a line already in place means you can act quickly on supplier discounts that reward early payment, rather than passing on the opportunity because working capital is tied up elsewhere.

Emergency costs 

Equipment breaks, a key employee leaves unexpectedly, or a client payment arrives two weeks late. Keeping an open line of credit means you can cover a short-term shock without liquidating assets or slowing operations.

Seasonal staffing

Businesses with predictable seasonal swings (construction, hospitality, retail) can draw to cover crew ramp-up or pre-season inventory, then repay as the season generates revenue.

Where to get a business line of credit

The three main sources differ substantially on speed, cost, and qualification bar.

How to qualify for a business line of credit

Lenders weigh five main factors: personal credit score, business credit profile, time in business, revenue, and intended use of funds.

Personal credit score

A score of 720 or above qualifies for nearly every program, including the best bank and SBA rates. Scores in the 680 to 719 range work for most bank lines. Scores between 600 and 679 give access to most online lenders, though at higher rates. Below 600, options narrow significantly and rates often start at 25% or higher.

Business credit score

Three bureaus dominate business credit: Dun & Bradstreet (PAYDEX score, 0–100, with 80+ signaling strong payment behavior), Experian Business (Intelliscore Plus, 1–100), and Equifax Business (its own payment index and risk scoring). A stronger business credit profile reduces reliance on a personal guarantee and often unlocks higher limits. If you are early in building a business credit file, the BILL Divvy Card[1] reports card payment performance to the Small Business Financial Exchange (SBFE®); on-time payments can help build business credit history over time, strengthening your profile before you apply for a line of credit.[1] For a full walkthrough of the steps, see our guide on how to build business credit.

Time in business and revenue

Bank lines typically require two or more years in business and consistent annual revenue. Online lenders have lowered this bar considerably: some consider businesses with as little as six months of operating history if bank statements look healthy. Initial credit limits from alternative lenders are often sized at roughly 10% to 30% of monthly revenue, with room to grow as you build a repayment track record.

Fees to expect with a business line of credit

Interest rates get most of the attention, but fees often matter more, especially for businesses that draw frequently in small increments.

A lender advertising a lower headline rate but charging a 2% draw fee on every withdrawal can end up costing more than a slightly higher-rate line with no draw fees, particularly for businesses making frequent small draws. Always compare total APR across lenders and factor in your expected draw pattern: larger, less frequent draws are generally more cost-efficient than a string of small ones.

How to apply for a business line of credit

Step 1: Check your personal and business credit reports 

Pull reports from the major bureaus so you know your starting position and can dispute inaccuracies before applying. Our guide on how to build business credit explains how to access each bureau's file. An incorrect derogatory mark can cost you a better rate or a higher limit.

Step 2: Decide secured or unsecured 

If your business has receivables or inventory you are willing to pledge, a secured line often delivers a better rate and a higher limit. If not, an unsecured line with a personal guarantee is the standard path.

Step 3: Gather documentation

Most lenders ask for 3 to 12 months of business bank statements, one to two years of tax returns, a profit-and-loss statement, and basic formation documents (articles of incorporation, EIN confirmation).

Step 4: Shop two or three lenders in parallel. 

Include at least one bank or credit union, an SBA-approved lender, and one online lender. Comparing real offers rather than advertised rates gives you accurate cost data and negotiating leverage.

Step 5: Compare total cost, not just APR. 

Add origination, draw, and maintenance fees into your comparison model. A lower APR with high draw fees can be more expensive than a slightly higher APR with no draw fees, depending on how frequently you plan to draw.

Step 6: Negotiate

Banks often match or beat a documented competing offer, especially if you move other banking relationships to them. Present competing offers in writing before accepting terms.

Step 7: Draw only what you need

Once approved, plan your repayment before you draw. Set a ceiling on how much you will carry as an outstanding balance and stick to it.

When to use a line of credit vs. a term loan

Managing a line of credit once you have one

Getting approved is only half the job. A few habits keep the line working for you.

Draw in larger, less frequent increments where possible, since per-draw fees erode the benefit of small, frequent pulls. Watch your utilization: carrying a balance close to your limit for extended periods can hurt your business credit score and signal risk to future lenders, the same way high utilization affects a personal FICO score. Repay drawn amounts promptly so the available credit resets and you are not paying interest longer than necessary.

Track draws against a budget rather than just against your bank balance, so spending stays tied to specific approved business needs. BILL Spend & Expense is built for exactly this. When a team draws from a credit facility and issues cards to employees or department heads, it is easy for spend to outpace the plan. 

BILL Spend & Expense gives finance teams real-time visibility into who is spending what, lets you set limits by card or department before spend happens, and automatically categorizes transactions for cleaner P&L reporting. That matters when lenders review your books at renewal: tidy, well-documented financials signal a business that manages borrowed capital carefully.

Review your business credit reports annually across all three bureaus. A stronger profile directly translates into better renewal terms and lower rates on your next line.

How BILL supports your business line of credit strategy

BILL does not issue business lines of credit, but it supports the two stages that determine whether a line of credit works for your business: qualifying for one and managing it effectively once you have it.

• Building the credit profile that opens doors. Lenders evaluate your business credit file alongside your personal credit score. If your business credit is thin, the BILL Divvy Card[1] reports card payment performance to the Small Business Financial Exchange (SBFE®), which can help build a business credit history over time with consistent, on-time payments.[1]  A stronger business credit profile means lower rates, higher limits, and less reliance on a personal guarantee when you apply for a line of credit.

• Knowing when to draw. The decision of whether to draw from a line of credit depends on having accurate, forward-looking visibility into your cash position.  BILL Accounts Payable automates the payment workflow and gives finance teams a clear view of what is owed and when, so you can identify a cash flow gap two or three weeks out rather than scrambling when a due date arrives. That lead time makes the difference between a strategic draw and a reactive one.

• Managing spend once you draw. Accessing a line of credit is just the beginning. Once funds are in the account, the discipline of spending only what was planned determines whether the line stays cost-effective. BILL Spend & Expense lets you issue virtual or physical cards tied to the draw, set per-card and per-department limits, and require approvals before spend happens. Transactions categorize automatically, keeping the P&L clean and lender-ready. When renewal comes, clean books and documented spend patterns give you a stronger position to negotiate better terms.

• Integrations that keep everything connected. BILL integrates with QuickBooks, Xero, Oracle NetSuite, Sage Intacct, and Microsoft Dynamics, so payment data, spend data, and bank activity flow into your accounting system without manual reconciliation. Lenders want to see accurate, current financials; clean integrations make that possible without extra work from the finance team.

Is a business line of credit right for your business?

Three questions help narrow down which type and which lender makes the most sense for your situation.

What is your estimated annual revenue? 

Lenders typically require $50,000 to $100,000 or more in annual revenue for standard lines. Businesses with higher revenue qualify for larger limits and better rates. Below $50,000, alternative lenders may still consider your application, but limits will be lower and rates higher.

How long has your business been open? 

Under one year: you are likely limited to online lenders and smaller limits. One to two years: online lenders plus some bank products become available. Two or more years: the full range, including traditional bank lines and SBA CAPLines, opens up.

Do you prefer a traditional bank or an online lender? 

If rate matters more than speed and you can wait two to six weeks, a bank line is usually the better deal. If you need funds within days or do not yet meet bank qualification thresholds, an online lender is the practical choice, with the understanding that it will cost more.

Your answers to those three questions point toward the right lender type and set realistic expectations for what terms you can negotiate.

Frequently asked questions

What credit score do you need for a business line of credit?

Most traditional banks prefer a personal credit score of 680 or higher. Online lenders work with scores as low as 600, and some alternative lenders consider scores in the 500s, though at significantly higher rates. Your business credit score also factors into larger requests or secured line applications.

What is the difference between a business line of credit and a term loan?

A business line of credit is revolving: you borrow, repay, and borrow again from the same pool, paying interest only on the active balance. A term loan disburses a lump sum upfront and you repay it on a fixed schedule, with interest on the outstanding balance. Term loans generally offer lower rates and longer repayment periods, making them better suited for large, one-time purchases. Lines of credit fit ongoing, variable, or unpredictable needs better.

Can a new business get a line of credit?

Yes, though options are more limited. Online lenders typically consider businesses with at least six months of operating history and steady revenue. Traditional banks and SBA programs generally require two or more years in business. Newer businesses often face higher rates and lower initial limits until they establish a repayment track record.

Can I get a business line of credit with bad credit?

Some online and alternative lenders work with personal credit scores as low as 500, though terms are significantly less favorable: higher rates, lower limits, and potentially a collateral requirement. Comparing offers from multiple lenders helps identify the best available terms for your credit profile. Businesses with strong receivables may also consider accounts receivable financing as an alternative if a traditional line of credit is out of reach.

What is the difference between secured and unsecured business credit?

A secured line requires collateral such as receivables or inventory in exchange for lower rates and higher limits. An unsecured line needs no collateral but almost always requires a personal guarantee, which makes you personally liable if the business cannot repay. Businesses with pledgeable assets nearly always benefit from pursuing a secured line first.

How does a business line of credit affect my credit score?

Applying typically triggers a hard inquiry on your personal credit, which may reduce your score by a few points temporarily. Carrying a high balance relative to your limit can also suppress your score, similar to high utilization on a personal credit card. Paying on time and keeping utilization moderate generally supports a positive credit profile over time.

What is an SBA CAPLine?

An SBA CAPLine is a revolving line of credit backed by the Small Business Administration, designed to help businesses manage cyclical working capital needs. It offers up to $5 million at rates tied to the prime rate plus a lender spread (currently roughly 9% to 15%), with longer underwriting times (4 to 8 weeks) and stricter qualification requirements than most online lenders. It is best suited for established businesses with a strong financial profile that can handle the documentation process.

Disclosures

_{This content is presented "as is," and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.}

_{[1] The BILL Divvy Card may be issued by one of Divvy Pay, LLC's bank partners. The BILL Divvy Card is not a deposit product. For your specific lender, see your Card Agreement. Eligibility for a BILL Spend & Expense account is subject to credit approval and underwriting. Credit lines and the advertised range are not guaranteed and will be determined upon application approval. Credit limits and terms, including rates and fees, may vary based on eligibility criteria. BILL reports card payment performance to the Small Business Financial Exchange (SBFE®); on-time payments can help build business credit history, but individual results will vary.}