$
Total available credit on your LOC
$
Amount you plan to draw (must be ≤ credit limit)
%
Bank LOC: 7–20% · Online lender: 10–40%
mo
Number of months to repay the draw
%
Some lenders charge 1–2% per draw (enter 0 if none)
$
Annual fee charged by lender (enter 0 if none)
Monthly Payment
—
💡 Pro tip: Only draw what you need. Interest accrues daily on the outstanding balance — the faster you repay, the less total interest you pay. Many LOCs allow early repayment without penalty, which can significantly reduce total cost.
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How Business Line of Credit Interest Works
Unlike a term loan, you only pay interest on the amount you actually draw — not the full credit limit. Interest accrues daily on the outstanding balance.
Monthly Payment Formula
Monthly Rate = APR ÷ 12
Monthly Payment = Draw × (Monthly Rate × (1 + Monthly Rate)^n) ÷ ((1 + Monthly Rate)^n − 1)
Total Interest = (Monthly Payment × n) − Draw Amount
Where n = number of monthly payments
Example: $50,000 draw at 12% APR over 12 months
Monthly rate = 1% · Monthly payment = $4,442 · Total interest = $3,307
Example: $50,000 draw at 12% APR over 12 months
Monthly rate = 1% · Monthly payment = $4,442 · Total interest = $3,307
Business LOC Rates by Lender Type (2024)
| Lender Type | Typical APR | Credit Limit | Requirements |
|---|---|---|---|
| Traditional Bank | 7%–20% | $10K–$500K | 680+ credit, 2+ yrs, $250K+ revenue |
| Credit Union | 6%–18% | $5K–$250K | Membership, good credit history |
| SBA CAPLine | Prime + 2.25–4.75% | Up to $5M | Good credit, 2+ yrs, collateral |
| Online Lender | 10%–40% | $1K–$250K | 600+ credit, 6+ mos, $100K+ revenue |
| Invoice Factoring | 1%–5%/mo | Based on AR | B2B invoices, creditworthy customers |
Sources & Methodology
Interest rate data from Federal Reserve H.15 release, SBA loan program data, and lender rate surveys. Updated March 2026.
Prime rate and commercial lending rate benchmarks used to contextualize LOC rate ranges
SBA CAPLine revolving credit program terms, rate caps, and eligibility requirements
Methodology: Monthly payment uses standard amortization formula. Total interest = (monthly payment × months) − draw amount. Total cost = total interest + draw fee + annual fees. Effective APR calculation includes all fees. Interest-only option calculates monthly interest = draw × (APR ÷ 12) with full principal repayment at term end.
Last reviewed: March 2026
Frequently Asked Questions
A business line of credit gives your business access to a set credit limit you can draw from as needed. You only pay interest on what you draw, and as you repay, funds become available again. It's ideal for managing cash flow gaps, payroll timing differences, seasonal inventory purchases, or unexpected business expenses. Unlike a term loan, it's flexible and revolving.
Interest accrues daily on the outstanding balance. Daily rate = APR ÷ 365. Monthly interest = outstanding balance × (APR ÷ 12). If you draw $50,000 at 12% APR and make no payments, monthly interest is $500. As you repay principal, interest charges decrease. This is why repaying as quickly as possible minimizes total interest cost.
A term loan provides a lump sum upfront with fixed payments over a set period — you pay interest on the full amount from day one. A line of credit lets you draw only what you need, when you need it, paying interest only on the outstanding balance. LOCs are better for ongoing, variable needs. Term loans are better for one-time, large purchases like equipment or real estate.
Traditional banks typically require 680+ personal credit score, 2+ years in business, and $250,000+ annual revenue. Online lenders like Bluevine, Fundbox, and OnDeck may approve with 600+ credit score, 6–12 months in business, and $100,000+ annual revenue. SBA CAPLine programs generally require 650+ credit score. Your business credit score (Dun & Bradstreet PAYDEX, Experian Business) also matters for larger credit limits.
Key fees include: annual maintenance fee ($100–$500/year), draw fee (1–2% of each draw), origination fee (0.5–2% of credit limit at opening), inactivity fee if you don't draw within a period, wire transfer fees, and early termination fees on some products. Always calculate the total cost of credit including all fees. A lower APR with high fees may cost more than a higher APR with no fees.
A business LOC makes sense when: you have predictable revenue but unpredictable expenses; you need to bridge gaps between invoicing and payment; you have seasonal cash flow fluctuations; you want emergency financing without immediate interest costs; or you need flexibility to draw and repay repeatedly. It's less ideal for large, one-time purchases — a term loan or equipment financing typically offers better rates for those uses.
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