Business line of credit: how it works, what it costs and how to qualify

How a business line of credit works: draw, repay, renew

Every line goes through the same stages. What changes from lender to lender is how long each stage lasts and what the lender can do at each one.

Available credit is the limit minus what you owe: On a $75,000 line, draw $20,000 for payroll and $15,000 for a supplier, then repay $10,000: you owe $25,000 and can draw $50,000 more. Repaid principal goes back into the pool. Interest and fees do not.

Two ways a draw gets repaid

A revolving balance: you owe one running balance, pay interest on it (often daily accrual, billed monthly) plus any required principal, and pay it down whenever cash comes in. A draw-by-draw schedule: each draw becomes a small installment loan with its own payments, often weekly, over a set number of months. Many online lines work the second way, and it changes what a short need costs.

Here is a $20,000 draw you only need for 60 days, under each structure. The figures are hypothetical, chosen to show the mechanics, not quotes from any lender.

Decision rule: if you expect to repay a draw early, ask in writing whether paying it off early cuts the cost. If the answer is no, the draw costs the same whether you keep the money 2 months or 12. How a revolving line of credit works walks through the revolving mechanics step by step.

Secured vs unsecured business lines of credit

"Unsecured" usually means no specific asset is pledged, not that nothing backs the line. The Federal Reserve's 2026 Report on Employer Firms found that of firms with debt, 59% used a personal guarantee and 51% used business assets to secure it. Expect at least one of the two on almost any line.

A cash-secured line is an on-ramp, not a funding source: You are borrowing against your own money. Its value is the repayment record it builds with a bank, which some banks review later for an unsecured line. For the tradeoffs in more depth, see secured vs unsecured business lines of credit, and for what signing a guarantee commits you to, read what a personal guarantee means on a business loan.

Bank line of credit vs online line of credit

The split matters more than any single rate quote, because the two kinds of lender build the product differently.

Cost surprises happen more at online lenders: In the same Fed report, 60% of businesses that borrowed from online lenders said actual costs were higher than expected, against 37% at small banks and 32% at large banks. The share of applicants going to online lenders rose from 17% in the 2020 survey to 29% in the 2025 survey, so more owners are meeting draw-by-draw pricing for the first time.

Bank lines tie your cost to prime: Prime was 7.00% as of October 2026, after the Fed raised its target range at its September 2026 meeting. On a variable line, every quarter-point move in prime changes what each drawn dollar costs.

SBA Express lines of credit

A bank can also offer a line under the SBA Express program. SBA's terms page caps Express loans at $500,000, lets revolving lines run up to 10 years, and caps the variable rate by size: prime plus 3% above $350,000 (10.00% at today's prime) up to prime plus 6.5% at $50,000 or less (13.50%).

Those are ceilings, not quotes. The bank decides whether to lend and sets your rate under the cap. What an SBA Express loan is covers the program.

What a business line of credit costs: interest plus fees

The rate is only part of the price. Fees you may see on a line:

• Origination or setup fee: charged once when the line opens.
• Annual or renewal fee: charged each year the line stays open, sometimes waived if you use it enough.
• Draw fee: a percentage of each draw, common on online lines.
• Unused line fee: a small charge on the part of the limit you have not drawn, more common on bank lines.
• Maintenance or monthly fee: a flat charge for keeping the account open.

Worked example, all hypothetical: a $75,000 bank line priced at prime plus 2%, so 9.00% with prime at 7.00%. It carries a 0.50% annual fee on the limit and a 0.25% unused fee on the undrawn part. You keep an average of $25,000 drawn.

The quoted rate was 9.00%; the money you used cost 11.0%. If prime rises a quarter point, interest on the same $25,000 goes up $62.50 a year. Compare lines on total dollars at the balance you expect to carry, not on the headline rate, and ask every lender for its full fee schedule in writing.

Line of credit covenants and reviews: what can shrink or close your line

A covenant is a promise in the credit agreement that holds for the life of the line. Break one and the lender can freeze draws, cut the limit or call the balance, even if you never missed a payment. Bank lines carry the most.

• Reporting: send tax returns, year-end statements and sometimes quarterly statements by set dates.
• Debt service coverage: keep cash flow at a set multiple of your annual debt payments. See how DSCR is calculated.
• No new debt or liens without consent: a new loan or a cash advance can put the line in default.
• Clean-up period: bring the balance to zero for a stretch of consecutive days each year, which proves the line funds short gaps rather than permanent needs.
• Cross-default: a default on another loan with the same lender counts as a default on the line.

Worked example: say a covenant requires coverage of at least 1.25x. Your cash flow available for debt service is $300,000 and your annual debt payments are $250,000, so coverage is 1.20x and you are out of compliance. To get back to 1.25x you would need payments of $240,000 or less, or cash flow of $312,500 or more. Run this math before you sign any new loan, not after.

Lines without formal covenants still get reviewed: Lenders that read your bank account watch for falling deposits, overdrafts, new advances debiting the account and credit drops, and they can lower or freeze a line when they see them. A line you have kept clean is your strongest position at a review.

How lenders set your line of credit limit

Lenders size a line from what can repay it: your deposits and cash flow, minus the payments you already owe, adjusted for credit and any collateral. Asset-based lines add a second test, a borrowing base built from eligible receivables and inventory.

Because the lender is committing to the whole limit, not just today's balance: many underwrite as if the line were fully drawn. That is why existing loan and advance payments shrink the line you can get, and why first lines often start smaller than owners expect. Our guide to the average business line of credit limit works through the sizing math with examples and covers how to get an increase.

How to apply for a business line of credit

1. Decide what the line is for. Write down the largest gap you expect in a year and how fast it repays. That is your target limit, and lenders will ask.
2. Gather documents: recent business bank statements, the last one or two business tax returns, a year-to-date profit and loss statement and balance sheet, a list of current debts with payments, owner ID and entity documents. Asset-based lenders add a receivables aging report.
3. Clean up the account the lender will read. Run all revenue through one business account and keep personal spending out of it.
4. Check your credit before a lender does. Many lines carry a personal guarantee, so your personal score counts. See credit scores for a business line of credit.
5. Ask how and when credit is pulled. Some lenders soft-pull to quote and hard-pull at signing or at the first draw. How a business line affects personal credit explains what shows up and when.
6. Compare offers on the same expected balance, using the cost table above, and read the covenants and review terms before you sign.

When a line of credit is the wrong tool

Long-lived purchases: a truck, a buildout or an acquisition needs years to pay back, and a line can be reviewed and cut long before that. Price a term loan or equipment financing instead; line of credit vs business loan shows the math side by side.

A balance that never comes down: if the line has been near its limit for a year, it has become a term loan with worse terms and a renewal risk. Refinance the stuck part into fixed payments and keep the line for real gaps.

Slow-paying B2B customers: if the gap is always unpaid invoices, financing the invoices themselves may fit better. See invoice financing vs a line of credit.

Where Quordx fits for a line of credit

Lines of credit are one of the products Quordx places. Quordx is a broker, not a lender: one application of about 10 minutes goes to lenders whose criteria fit your file, and those lenders set the limit and the price. The business pays Quordx nothing; the lender pays a commission if a deal funds.

Be realistic about the starting point. The lenders Quordx works with for lines generally look for around $17,000 a month in revenue and, in most cases, 12 months in business. Below that, a cash-secured line at your own bank is the better first step. Quordx also does not place SBA Express or asset-based lines, so your bank or an asset-based lender is the route for those.

Businesses in Virginia, Connecticut, Missouri and North Dakota are outside Quordx's service area, and California applicants get a state notice before they continue. If your numbers fit, apply through Quordx and compare what comes back against your bank.