The short answer
A business line of credit gives a company a preset borrowing limit it can draw from as needed, repay, and draw from again. Interest accrues only on the outstanding balance, not the full limit. Limits vary by lender and by the revenue behind the file, and the line revolves as long as it stays in good standing.
How Draws and Repayment Work
A business line of credit is revolving financing that lets a company borrow up to a set limit, repay the balance, and borrow again, paying interest only on what is outstanding. A business approved for a 100,000 dollar line that draws 20,000 pays interest on 20,000. Repay it, and the full limit is available again without a new application.
Draws land in the operating account, usually same day or next day. Repayment runs on a weekly or monthly schedule against the drawn balance, and many online lines repay each draw on a fixed schedule measured in months rather than years. This is what separates a line from a term loan: the term loan is one disbursement, the line is a standing facility. Many lenders also allow early repayment of a draw without penalty, which resets availability faster.
What a Business Line of Credit Costs
Bank credit prices lowest: NerdWallet, citing Federal Reserve Bank of Kansas City survey data, puts average small business bank loan rates at 6.37% to 10.98% in the first quarter of 2026. Online lines run higher, and NerdWallet puts business line of credit APRs at 10% to 99%. Some lenders add a draw fee (NerdWallet notes a 2% draw fee at one online lender) or a monthly maintenance fee, while others charge neither.
The structural advantage is paying for capital only when it is deployed. A business that draws three times a year for inventory pays a fraction of what the same limit would cost as a fully disbursed term loan sitting in the account. For businesses with uneven revenue, that difference compounds across the year into a materially lower total financing cost.
What Lenders Want Before Approving One
Banks generally want a credit score of 680 or higher, two or more years in business, and six figures of annual revenue. NerdWallet puts the typical floor for lines of credit at 600 or higher, and several online lines it reviews require a 625 score with six to twelve months in business. Clean bank statements with few NSFs matter for both, and more operating history generally supports a larger limit.
Demand is broad. In the Federal Reserve's 2026 Report on Employer Firms, 38% of firms applied for a loan, line of credit, or merchant cash advance in the prior 12 months, and meeting operating expenses was the most common reason firms sought financing (56%).
When a Line Beats a Term Loan
A line fits recurring, variable needs: inventory cycles, payroll timing, seasonal gaps, and surprise expenses. A term loan fits a single known cost, like a buildout or an equipment purchase, where the full amount deploys at once. Sizing follows revenue, with lines commonly sized against annual revenue, which is why sizing conversations should start from the recurring gap rather than the wish list.
The best time to open a line is before it is needed, since approval depends on the statements a business shows while healthy. Batch Capital, Batch Group's funding division, funds advances with its own capital and also matches businesses with funders on its panel for lines of credit, term loans, and consolidation, from $5,000 to $2 million.
Commonly Asked Questions
Do you pay anything on an unused line of credit?
Often nothing. Some lenders charge a monthly maintenance or inactivity fee, so check the schedule, but interest itself only accrues on drawn funds.
Is a business line of credit secured?
Smaller lines are usually unsecured beyond a UCC lien and a personal guarantee. Larger bank lines may require collateral such as receivables, inventory, or deposits.
Can a lender reduce or freeze my credit line?
Yes. Most agreements let the lender cut the limit or pause draws if revenue drops, NSFs appear, or covenants are missed, which is another reason to open the line while performance is strong.
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