A business line of credit functions like a business credit card. You have a credit line that you can draw funds from at any time. If you’re carrying a balance, you’ll have a minimum payment. You only pay interest, and potentially a draw fee on the portion that you borrow. And when you pay off a part of your balance on time, that money usually becomes available to you again. This is because most business lines of credit are technically “revolving” lines of credit. A small business line of credit should be a priority because it could be critical to a small business’s success. Unlike other small business loans, you don’t need to reapply each time you want to use the money available to you. And as the Small Business Administration (SBA) points out, small businesses need access to cash to survive and thrive. Online lenders also make applying for and renewing a small business line of credit easy. Most lenders online don’t require financial statements or tax returns like traditional lenders might. While a small business owner might receive lower credit limits from many lenders for not providing tax returns or financial statements, the best business line of credit for their short-term financing needs may not require those documents.

How it Works

Once you borrow funds from your small business line of credit, you will have to pay interest and have a minimum payment like a business credit card. Depending on the lender, your first payment could be due the following week or at the end of the month. Your interest charges depend on how quickly you pay off your total balance. If you repay what you borrowed on time, your business line of credit replenishes. For example, let’s say your monthly payment is $200, and your interest is $10. If you paid back $200, your credit line would go back up by $190. In some cases, you may have to pay a small fee (a.k.a. a draw fee) whenever you draw from your business line of credit. Typical draw fees range from 1.6% to 2.5%.