Business Lines of Credit: Types, Pricing, and How to Qualify

#What is a business line of credit?

A business line of credit is a revolving credit facility, the lender approves a maximum credit limit, and the borrower draws against it as needed, repays, and re-draws. Interest accrues only on the drawn balance, not the unused capacity.

This is fundamentally different from a term loan, which gives you a single lump sum and a fixed amortization schedule. A line of credit is a tool for managing cash flow timing, covering payroll between receivables, funding inventory ahead of seasonal sales, bridging a single slow month, rather than financing a one-time project.

#How does pricing work on a line of credit?

Most business LOCs are variable-rate, tied to the prime rate plus a margin. Pricing components include:

• Interest rate. Prime + 1–4% for bank LOCs, prime + 4–10% for online revolvers, prime + 8–15% (or factor-rate equivalents) for short-term unsecured online lines
• Origination or annual fee. $0–$500 typical for bank; 1–3% of limit for online
• Draw fee. Some online LOCs charge 1–3% per draw on top of interest
• Maintenance/non-usage fee. Bank LOCs often charge 0.25–0.50% of unused capacity annually if average utilization is too low
• Termination fee. Some carry an early-close fee in the first 12–24 months

Because pricing is variable and the APR depends on how you draw, the only honest cost figure is "what does this line cost me if I draw $50K and carry it for 90 days." Run that math on every offer.

#What are the three main types of business lines of credit?

#Bank traditional lines of credit

Issued by community and regional banks. Lowest cost, highest documentation burden. Annual renewals are standard, the bank reviews your financials each year and may reduce, increase, or non-renew. Often paired with a deposit relationship.

#Online revolving lines

Issued by non-bank lenders. Underwritten on bank statements with a soft pull. Funding in 24–72 hours. Usually carry a fixed term per draw (e.g., each draw amortizes over 6–18 months) rather than open-ended interest accrual. Higher rate, lower documentation.

#Asset-backed lines (ABL)

Underwritten against a specific pool of accounts receivable and inventory. The lender sets an advance rate (e.g., 80% of eligible AR under 90 days, 50% of eligible inventory) and the borrowing base is recomputed monthly. ABL is the right tool for businesses with large, lumpy AR, distributors, wholesalers, manufacturers, but the operational overhead (monthly certificates, field exams, sometimes lockbox) is real.

#What does a typical draw cost?

#How do you qualify for a bank line of credit?

The qualification bar is the highest of the three types:

• Two years in business with consistent revenue
• **Personal FICO 680+** for the guarantor
• Two years of business tax returns showing profitability
• Interim financial statements (P&L, balance sheet) within 60 days
• **DSCR 1.25 or higher** including the proposed line
• Operating bank account at the issuing bank (often required)

If any of those is missing, an online revolver is usually the next stop.

#How do you qualify for an online revolving line?

The bar is significantly lower:

• 6–12 months in business
• 600–660 FICO floor (varies by lender)
• $15K–$25K monthly business deposits
• Clean recent NSF and overdraft history
• No active stacked MCAs

ICG offers a line of credit product underwritten on bank statements with a soft credit pull, minimum FICO 500+, minimum revenue $15K/mo, funding decision in 24 hours.

#How do you qualify for an asset-backed line?

Different math entirely. The lender cares less about your historical profitability and more about the quality of your collateral:

• AR aging report, most lenders advance against invoices 0–90 days, customer-concentration capped (often 20% per customer)
• Inventory schedule with cost basis and turnover
• Customer credit quality (a $1M invoice to a Fortune 500 buyer is worth more than $1M to a marginal customer)
• Field examination by the lender's audit team (often quarterly)
• Lockbox or restricted-account arrangement on collected receivables

ABL works for businesses with significant working-capital tied up in AR or inventory. It does not work for service businesses with no inventory and short payment cycles.

#When does a line of credit beat a term loan?

Choose a line when:

• The need is timing, not financing, you have the revenue to repay quickly but need bridging
• The amount needed varies month-to-month
• You want to keep capital available for unforeseen opportunities
• You are already approved and just need to draw

Choose a term loan when:

• The use is a single defined project (build-out, acquisition, equipment)
• The payback period is 1–5 years
• You want a fixed monthly payment for budgeting
• You do not need recurring access, one funding event solves the problem

For comparison detail, see revenue-based funding vs term loan and MCA vs term loan true cost.

#What about HELOCs and personal lines for business use?

Owners sometimes use a personal Home Equity Line of Credit (HELOC) for business purposes. The pricing is attractive (prime + 1%) but the risk is personal, your home secures business debt. We do not recommend HELOC for working capital unless the business has a defined, short, high-confidence payback. A pure business LOC keeps the risk in the entity where it belongs.