How does a business line of credit work?

A lender approves a maximum limit. You draw any amount up to that limit whenever needed, pay interest only on the drawn balance, and restore availability as you repay. The facility revolves — draw, repay, redraw — which suits recurring working-capital gaps such as payroll timing, seasonal inventory, and receivables cycles.

What does a business line of credit cost?

Bank lines price off the prime rate and are the cheapest revolving capital available to most companies. Non-bank lines carry a meaningful premium — often quoted as a monthly rate — in exchange for speed and lighter underwriting. The true cost also includes draw fees, unused-line fees, and repayment sweep frequency, which is why two lines with the same quoted rate can cost very different amounts in practice.

How large a line can my business get?

Smaller lines are sized from revenue and cash flow. Above roughly $1M, most facilities are governed by a borrowing base — commonly a large percentage of eligible receivables plus a smaller percentage of eligible inventory — so the honest answer depends on your working-capital assets rather than a rule of thumb. A company with strong receivables can often support a materially larger borrowing-base facility than a fixed-limit line would ever offer.

What is the difference between a line of credit and asset-based lending?

An asset-based facility is a line of credit whose availability is calculated from collateral — receivables and inventory — rather than fixed at underwriting. It carries more reporting, supports much larger limits, and grows with the business. Companies typically move from a fixed line to ABL when growth outruns the limit their balance sheet history supports.

Why did my bank decline to increase my line?

Usually because bank limits are underwritten to historical financials, and your growth has outrun what those financials support — not because the business is unbankable. The structural fix is a facility sized to current working-capital assets: a borrowing-base line or asset-based facility against receivables and inventory, sometimes alongside the existing bank relationship rather than replacing it.

Can I get a line of credit with a UCC lien or existing loan in place?

Often, but position matters. A new lender generally needs first position on the collateral supporting the line, so existing blanket liens require subordination, carve-outs, or payoff at closing. Bringing your current UCC picture to the first conversation shortens the process considerably.

How fast can a line of credit be established?

Non-bank lines commonly decide in one to several business days from complete documentation. Bank lines for new relationships typically take several weeks to a few months. Borrowing-base facilities fall in between, with timing driven by collateral review rather than credit committee calendars.

Capital solution

A business line of credit: revolving capital for needs that repeat.

A line of credit — what your banker calls a revolver — lets you draw, repay, and redraw against a set limit, paying only for what you use. It is the right instrument for recurring working capital gaps, and frequently the wrong one for the problems it gets used for.

Reviewed by Ryan Hurley, Co-Founder & CEO

A business line of credit is a revolving facility with a set limit that a company can draw against, repay, and reuse continuously. Interest accrues only on the drawn balance. Banks offer the lowest pricing with the heaviest underwriting; non-bank lines fund faster at a meaningful premium; and above roughly $1M, availability is usually governed by a borrowing base tied to receivables and inventory.

Good fit

Recurring, short-cycle needs

Payroll timing, seasonal inventory builds, and receivables gaps that recur and self-correct — draw when the gap opens, repay when it closes.

Tradeoff

Sized to your balance sheet

A line is underwritten to what you already are, not what you are becoming. Fast-growing companies routinely outgrow their limit faster than lenders will raise it.

Review

Renewal is the hidden term

Most lines are reviewed annually and many are payable on demand. What happens at renewal — or in a tightening credit market — matters as much as the rate.

The decision that matters

Bank, non-bank, or borrowing-base: three different products sharing one name.

“Line of credit” describes at least three materially different facilities, and most frustration with the product comes from applying for the wrong one.

A bank line is the cheapest capital most operating companies can access — priced off the prime rate, often with modest spreads for strong credits. The price of that pricing is underwriting: multiple years of profitable financials, personal guarantees, deposits moved to the bank, covenants, and a process measured in months for new relationships. Banks are also the most likely to reduce or call a line when conditions tighten, precisely when you need it.

A non-bank line trades cost for speed and tolerance. Approval in days rather than months, thinner documentation, and more flexibility on credit history — at pricing that runs a meaningful premium to bank rates and is often quoted monthly rather than annually. Watch for draw fees charged on each advance and how quickly repayment is swept; both change the true cost more than the quoted rate does. Convert any quote to an annualized figure with the capital cost calculator before comparing.

A borrowing-base line is what larger facilities actually look like. Above roughly $1M, availability is usually not a fixed number but a formula: a percentage of eligible receivables plus a percentage of eligible inventory, recalculated as the collateral changes. At that point the product has effectively become asset-based lending — a facility that grows with your working capital instead of your history, which is exactly why growing companies graduate to it.

The part most people get wrong

A revolver is for gaps that close. It is not term capital.

The defining feature of a line of credit is revolving use: draw, repay, redraw. That makes it ideal for financing the working-capital cycle — cash goes out for payroll or inventory, comes back at collection, and the line breathes with the cycle.

It makes it a poor instrument for anything permanent. Funding an equipment purchase, an acquisition, or a renovation on a revolver leaves a drawn balance that never revolves — which lenders read as distress, and which turns your emergency capacity into a term loan at revolver pricing without term-loan protections. Equipment belongs on equipment financing matched to the asset’s life; acquisitions belong on acquisition structures; a one-time cash event belongs on bridge capital with a defined repayment source.

The line of credit vs. term loan comparison works through the decision in detail.

Before you apply anywhere

Ten minutes on your cash cycle usually settles which line you should be applying for.

Bank line, non-bank line, or a borrowing-base facility — the right answer follows from your receivables, your seasonality, and how fast you are growing. We place all three and will tell you plainly which fits, including when the answer is your bank.

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Terms that decide the experience

What to read before the rate.

Renewal and demand provisions. Annual review is standard; payable-on-demand language is common. Know whether your line can be reduced or called, and on what notice.
Unused-line and draw fees. Some facilities charge on committed-but-undrawn capacity; others charge per draw. Either can dominate the cost of a lightly used line.
Repayment sweep. Non-bank lines often sweep repayment weekly from deposits. A fast sweep on a slow collection cycle recreates the very gap the line was meant to bridge.
Covenants and reporting. Bank and borrowing-base lines carry financial covenants and periodic reporting. Missing a covenant on an otherwise healthy business is a common and avoidable crisis.
Collateral and guarantees. Most lines above modest size carry a blanket UCC filing and a personal guarantee. Both affect what other financing you can layer alongside — sequencing matters.
Cleanup requirements. Some banks require the line to rest at zero for a period each year — incompatible with businesses whose working-capital need never fully closes.

Documentation

What underwriting asks for, by facility type.

Non-bank lines: recent bank statements, a current A/R aging, and basic organizational documents. Decisions commonly in days.
Bank lines: two to three years of financial statements and tax returns, interim statements, personal financials of guarantors, and a debt schedule.
Borrowing-base facilities: the above plus detailed A/R and inventory reporting, customer concentration data, and in larger facilities a field exam of the collateral.

Where it sits

A line of credit against the alternatives.

Line of credit — recurring, short-cycle working capital. Cheapest when bank-provided; capacity limited by your balance sheet.
Asset-based lending — a line whose limit is built from collateral rather than history. The answer when growth has outrun a fixed limit.
Invoice factoring — receivables funding that scales automatically with billing, with the factor handling collections. Often the practical choice when a line is unavailable or too small.
Term loan — a fixed amount amortized over a fixed period, for needs that do not revolve.
Revenue-based financing — fast and unsecured, at a premium; a tool for defined, short-lived needs rather than a standing facility.

For ecommerce and inventory-led companies, the fit questions are specific enough that we maintain a dedicated page on lines of credit for ecommerce companies. And when a bank has just declined to raise an existing limit, the useful move is usually structural rather than another application — we cover exactly that situation, and the borrowing-base facilities built for it.

Questions we are asked

Business lines of credit, answered directly.

How does a business line of credit work?: A lender approves a maximum limit. You draw any amount up to that limit whenever needed, pay interest only on the drawn balance, and restore availability as you repay. The facility revolves — draw, repay, redraw — which suits recurring working-capital gaps such as payroll timing, seasonal inventory, and receivables cycles.
What does a business line of credit cost?: Bank lines price off the prime rate and are the cheapest revolving capital available to most companies. Non-bank lines carry a meaningful premium — often quoted as a monthly rate — in exchange for speed and lighter underwriting. The true cost also includes draw fees, unused-line fees, and repayment sweep frequency, which is why two lines with the same quoted rate can cost very different amounts in practice.
How large a line can my business get?: Smaller lines are sized from revenue and cash flow. Above roughly $1M, most facilities are governed by a borrowing base — commonly a large percentage of eligible receivables plus a smaller percentage of eligible inventory — so the honest answer depends on your working-capital assets rather than a rule of thumb. A company with strong receivables can often support a materially larger borrowing-base facility than a fixed-limit line would ever offer.
What is the difference between a line of credit and asset-based lending?: An asset-based facility is a line of credit whose availability is calculated from collateral — receivables and inventory — rather than fixed at underwriting. It carries more reporting, supports much larger limits, and grows with the business. Companies typically move from a fixed line to ABL when growth outruns the limit their balance sheet history supports.
Why did my bank decline to increase my line?: Usually because bank limits are underwritten to historical financials, and your growth has outrun what those financials support — not because the business is unbankable. The structural fix is a facility sized to current working-capital assets: a borrowing-base line or asset-based facility against receivables and inventory, sometimes alongside the existing bank relationship rather than replacing it.
Can I get a line of credit with a UCC lien or existing loan in place?: Often, but position matters. A new lender generally needs first position on the collateral supporting the line, so existing blanket liens require subordination, carve-outs, or payoff at closing. Bringing your current UCC picture to the first conversation shortens the process considerably.
How fast can a line of credit be established?: Non-bank lines commonly decide in one to several business days from complete documentation. Bank lines for new relationships typically take several weeks to a few months. Borrowing-base facilities fall in between, with timing driven by collateral review rather than credit committee calendars.

Get the right revolver, sized the right way.

We evaluate your cash cycle and collateral first — then place the facility with the lender whose structure actually fits it.

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