Business Line of Credit: How It Works, What It Costs and How to Qualify (2026 Guide)

Updated November 2026

A business line of credit lets a company borrow up to a set limit, repay and borrow again, paying interest only on what it draws.^[1]^[2] It works much like a credit card and is also called a revolving credit facility.

This guide covers how lines of credit work, what they cost, how they compare with term loans, who qualifies and how to choose a lender.

How does a business line of credit work?

Limit: the lender sets a maximum based on your financial history and credit.^[2] Many lenders offer lines up to $250,000 or more; online lenders usually offer less, and SBA CAPLines go up to $5 million.^[1]^[3]
Draws: you take funds as needed and pay interest only on the amount drawn.^[1]^[2]
Revolving: as you repay, that amount becomes available to borrow again, without reapplying.^[2]
Draw period: typically up to 24 months. At the end, the lender may renew the line, convert the balance into a term loan or require repayment.^[2]
Repayment: varies by lender; some online lenders require weekly payments, others monthly.^[1]
Interest: usually variable and tied to a market benchmark.^[2]

Secured vs. unsecured. Unsecured lines are common for smaller amounts, often $10,000–$250,000. Larger limits may require collateral or a personal guarantee.^[2] SBA CAPLines may require collateral.^[1]

How much does a business line of credit cost?

Business line of credit rates range widely, from about 10% to 99% APR, and banks generally charge less than online lenders.^[1] SBA CAPLines and SBA Express lines typically run about 10%–15%.^[3] Lines often cost more than term loans, especially when unsecured.^[2]

Fees to watch:^[1]^[2]

Draw fees: a percentage of each draw; one lender charges most borrowers 2%
Annual or maintenance fees: charged for keeping the line open
Origination and inactivity fees: charged by some lenders

Example (illustration only). A business has a $250,000 line at 15% APR with a 2% draw fee. It draws $100,000 to buy seasonal inventory and repays it in three months.

Item	Amount
Amount drawn	$100,000
Interest for 3 months (15% APR)	About $3,750
Draw fee (2%)	$2,000
Total cost	About $5,750
Available again after repayment	$250,000

The figures are illustrative and are not an offer of terms.

Line of credit vs. term loan

	Line of credit	Term loan
How you get the money	Draw as needed, up to a limit^[2]	Lump sum up front^[2]
Interest	Only on the amount drawn^[2]	On the full amount from day one^[2]
Repayment	Revolving; repaid amounts can be borrowed again^[2]	Fixed payments over a set term^[2]
Rate	Usually variable; often higher, especially unsecured^[2]	Often fixed
Best for	Cash flow gaps, inventory, seasonal swings^[2]	Long-term investments such as equipment or expansion^[2]

For larger working capital needs backed by receivables and inventory, see our guide to asset-based lending. For a short-term gap tied to a specific event, see our guide to business bridge loans.

Looking for $1M–$50M in growth capital?

Hum Financial, Hum Capital’s direct lending arm, provides non-dilutive financing to established U.S. businesses, with typical terms of 12–36 months.

See If You Qualify

Who qualifies, and when it fits

As a general guide, many lenders look for a credit score of 600 or higher, at least six months in business and $50,000 or more in annual revenue. Banks and SBA lenders usually set higher bars; SBA CAPLines typically require a 650 score and two years in business.^[1]

A line of credit tends to fit when you need to:^[2]

Cover cash flow gaps between paying suppliers and getting paid
Buy inventory or smooth seasonal dips
Keep a cushion for emergencies or short-term opportunities

The risks^[2]

Variable costs: rates can rise with market benchmarks.
Overspending: easy access can turn short-term borrowing into long-term debt.
Reviews and renewals: lenders may review the line annually and can reduce or close it.
Smaller limits: lines usually offer less than long-term loans.

How to choose a line of credit lender

What is the APR, and is it fixed or variable?^[1]^[2]
What fees apply? Ask about draw, annual, maintenance, origination and inactivity fees.^[1]
How long is the draw period, and what happens at the end?^[2]
How often are payments due? Weekly payments can strain cash flow.^[1]
Is collateral or a personal guarantee required?^[2]
How fast can I draw funds? Some online lenders fund within a day or two; banks and SBA lenders take longer.^[1]
How and when is the line reviewed?^[2]

Direct lending from Hum

For established businesses that need more than a typical line of credit offers, direct lending is another non-dilutive option. Hum Financial, Hum Capital’s direct lending arm, provides $1M–$50M in non-dilutive growth capital to established U.S. businesses, with typical terms of 12–36 months.^[4] Facilities can be structured with multiple draws; see how Return Policy secured a $1.5M multi-draw facility.

Related reading:

Ready to explore direct lending? Get funded by Hum.

Frequently asked questions

How does a business line of credit work?

You can borrow up to a set limit, repay and borrow again, paying interest only on what you draw.^[1]^[2]

What is a typical business line of credit rate?

About 10% to 99% APR depending on the lender; banks generally charge less than online lenders.^[1]

How much can I get?

Many lenders offer up to $250,000 or more; SBA CAPLines go up to $5 million.^[1]^[3]

Do I need collateral?

Not always. Unsecured lines are common for smaller amounts; larger lines may require collateral or a personal guarantee.^[2]

What do I need to qualify?

Many lenders look for a 600+ credit score, six months in business and $50,000 in annual revenue. Banks and SBA lenders usually require more.^[1]

Line of credit or term loan?

A line suits recurring, short-term needs; a term loan suits a one-time, long-term investment.^[2]

This article is for general information only and is not financial, legal or tax advice. Terms vary by lender and by business. Talk with a qualified advisor before entering any financing agreement.