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Loan type

Business Line of Credit

A revolving credit limit you draw on, repay, and draw on again.

Run the numbers How to apply

How it works
Draw as needed up to a limit; interest only on the balance
Typical use
Payroll gaps, inventory, seasonal swings
Rate
Usually variable, tied to prime
SBA version
CAPLines: up to $5 million, maximum 10-year maturity (Builders lines up to 60 months plus construction)
Costs to watch
Annual or draw fees, unused-line fees, renewal fees
Best for
Uneven cash flow, not long-term assets

What it is

A line of credit works like a business credit card with a much higher limit and a lower rate. You are approved for a maximum, borrow what you need when you need it, and pay interest only on what is outstanding. As you repay, the room opens up again.

That makes it ideal for timing gaps: waiting on a customer payment, buying inventory ahead of a busy season, or covering a slow month. It is a poor fit for buying equipment or real estate, because lines are shorter-term and usually renewed periodically.

Interest over 12 months at 10.5%
Term loan, $100,000 all year$10,500
Line of credit, average $48,750 drawn$5,119

Illustration at the same rate. The line costs less because you pay interest only on what you have drawn, which is the point of a revolving line.

A good fit if you want

  • Cash-flow gaps and seasonal businesses
  • Having a safety net without paying interest on idle money
  • Borrowing needs that are hard to predict

Probably not the right tool if

  • Financing a long-lived asset
  • Borrowers who tend to leave the balance near the limit, which can lead lenders to cut the line

Typical requirements

  • Business bank statements and financials
  • Often a personal guarantee
  • Collateral such as receivables, inventory or a blanket lien
  • SBA CAPLines follow the same eligibility as a 7(a)

Run the numbers

These calculators run in your browser and are estimates, not offers. Change any number to see the effect.

How to apply

  1. Know your cycleMap when cash goes out and comes in over the year to size the limit.
  2. Compare lendersBanks usually price lower; online lenders approve faster. Compare the all-in cost.
  3. Gather documentsBank statements, tax returns, financial statements and an accounts receivable report if you have one.
  4. Apply and negotiateAsk about draw fees, renewal terms and whether the rate is capped.
  5. Use it, then repay itTreat the line as a bridge, not permanent funding.

Need a lender, an SBA district office or a free counselor? Use the national directory.

Common questions

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

A term loan gives you the full amount up front and charges interest on all of it. A line lets you borrow in pieces and pay interest only on what you use.

Can the lender cut my line?

Yes. Lines are commonly reviewed and renewed, and lenders can reduce or freeze them if your finances weaken.

Keep reading

Sources

General information, not financial, tax or legal advice. LoansFlow is not a lender and this is not an offer of credit. Program rules, limits, fees and rates change; confirm current terms with your lender and the issuing agency. SBA figures reflect SBA.gov and the fiscal year 2027 fee notices (effective October 1, 2026).