Loan types

The business line of credit, and what it really costs to keep one

A line only saves money if you let it sit at zero. Here is the cost of a $250,000 line under three usage patterns, plus the renewal terms nobody reads.

6 minute readUpdated 2026-07-29Written by the Exp Capital desk

A line of credit is an approved limit you can borrow against, repay, and borrow against again. You pay interest only on what is outstanding, which makes it the cheapest way to cover a need that comes and goes. It also makes it the easiest product in this market to misuse, because a line left fully drawn is just an expensive term loan with worse terms.

The mechanics matter. You are approved for a commitment amount, say $250,000. You draw $80,000 on Tuesday and interest starts on $80,000 only. You repay it in March and the interest stops. The $250,000 limit is still there. That cycle, draw and repay and draw again, is what you are actually paying for, and it is worth real money when your cash needs are lumpy.

The revolving cycle, start to finish

A $250,000 line, priced three ways

Assume a $250,000 line at 16 percent, a 2 percent fee on each draw, and a $50 monthly maintenance fee. Now run three realistic years.

In the first year you draw $100,000 in March and clear it by June, then draw $150,000 in September and clear it by December. Interest is $4,000 on the first draw and $6,000 on the second. Draw fees add $2,000 and $3,000. Maintenance adds $600. Your total cost for the year is $15,600, and you had $250,000 of capacity available the entire time.

In the second year you keep an average of $125,000 outstanding the whole year. Interest is $20,000, the draw fee is $2,500, maintenance is $600, and the year costs $23,100. In the third year you draw the full $250,000 in January and never pay it down. Interest is $40,000, the draw fee is $5,000, and the year costs $45,600. A $250,000 term loan at 12 percent would have cost $27,911 in interest that same first year.

One year of cost on a $250,000 line at 16 percent

Bank lines and online lines are priced and administered in completely different ways, and the difference shows up on your bank statement, not in the marketing.

True revolving line: Interest accrues daily on the outstanding balance at a variable rate, usually prime plus a spread. You are billed monthly, often interest only during the draw period. Payoff stops the clock immediately. This is the structure a bank or credit union writes.
Draw as installment: Every draw becomes its own small fixed payment loan, repaid weekly or monthly over 6 to 12 months at a fixed total fee. As you repay, the availability comes back. Common with online funders. The fee is usually front loaded, so paying early saves far less than the remaining months suggest.
Unused line fee: Some bank facilities charge 0.25 to 0.50 percent per year on the portion you have not drawn. On a $250,000 line sitting mostly idle, that is roughly $500 to $1,100 a year for the option value.
Draw fee: 1 to 3 percent of each individual draw, charged at the moment you pull the money. Five small draws cost five fees, so pull once and hold rather than nibbling.

The practical consequence: on a true revolving line, a 20 day draw costs 20 days of interest. On a draw as installment product, a 20 day draw usually costs at least one full month of fee and sometimes more. Ask which one you are being offered before you compare the headline rate.

What underwriting looks at

A line is underwritten on your ability to repay repeatedly, not once. That makes the deposit pattern in your bank statements more important here than on almost any other product.

Revenue consistency. A lender extending revolving credit wants to see that the money to repay it shows up every month. Twelve steady months beats two enormous ones. See how lenders read your statements.
Average daily balance. This drives the size of the commitment more than gross revenue does. A business that runs near zero every day gets a smaller line no matter what the top line says.
Time in business. Online lines generally start at 6 to 12 months. Bank lines want two years and filed returns.
Existing revolving debt. Maxed business cards and an already drawn line read as a business that has run out of room, and that shows up in your pricing.
Personal credit. Roughly 600 and up opens the online lane. Roughly 680 and up opens the bank lane at materially better pricing.

What an underwriter checks before setting your limit

The renewal terms nobody reads

A line of credit is not permanent. It is a commitment for a stated period, and everything about it is reviewable. These are the clauses that surprise owners at the worst possible moment.

Annual renewal. Most lines mature in 12 to 24 months and are re underwritten at renewal. A bad year can shrink the limit or end the facility even if you never missed a payment.
Clean up or resting requirement. Many bank lines require the balance to sit at zero for 30 consecutive days each year. It exists to prove the line is funding working capital rather than a permanent hole. Failing it is a covenant breach.
Reduction or freeze. Most agreements let the lender cut availability or suspend draws for material adverse change. Availability is not the same thing as cash in your account.
Cross default. A default on any other facility with the same institution can freeze the line. Read the definition of default rather than assuming it means missed payments.
Blanket lien. Nearly every line is secured by a blanket UCC filing over all business assets, which will complicate any second facility later. See what a UCC filing does.

When a line is the right answer

The test is simple. If the need repeats and the repayment is visible, a line is almost always the cheapest structure available to your file.

01Receivable gaps
You invoice on net 45 and payroll is every other Friday. A line covers the gap and clears when the customer pays. If receivables are the whole problem, compare it to invoice factoring first.
02Seasonal inventory
Buy in August, sell in November, repay in December. You pay for four months of money instead of twelve.
03Standing insurance against surprises
An approved and undrawn line is the cheapest emergency capital there is. It costs a maintenance fee and it keeps you out of the fast expensive lane when a compressor dies.

Where a line of credit sits on speed and cost

A line and a merchant cash advance are not competitors on cost, they are competitors on timing. The line is dramatically cheaper and takes longer to put in place. The correct move is to get the line approved while you do not need it, which is also the only time you are likely to be approved for a good one.

What Exp Capital does with this

Exp Capital Solutions is a broker, not a lender. We do not set your limit, your rate, or your draw fee. We package the file once, put it in front of the partners who actually write revolving facilities at your revenue and credit profile, and come back with the commitment amount, the pricing, the draw mechanics, and the renewal terms in plain language. When the honest answer is that your need is one time and a term loan prices better, we tell you that, even though it pays us less.

Questions people actually ask

Do I pay interest on the full line of credit or only what I use?

Only on what is outstanding. If you are approved for $250,000 and draw $40,000, interest accrues on $40,000. Some bank facilities add a small unused line fee of 0.25 to 0.50 percent per year on the undrawn portion, and many lines carry a flat monthly maintenance fee whether you draw or not.

What credit score do I need for a business line of credit?

Online revolving facilities generally start around 600 on the owner's personal FICO with at least six months in business and steady monthly deposits. Bank and credit union lines usually want 680 or better, two years in business, filed tax returns, and a debt service coverage ratio of at least 1.25.

How is a line of credit different from a business credit card?

A line gives you cash into your bank account and is priced as a loan. A card gives you purchasing power at merchants and charges a much higher rate on cash advances. Cards usually have no draw fee and a grace period on purchases. Lines usually have a higher limit and a lower cost on borrowed cash.

Can a lender reduce or close my line of credit?

Yes. Almost every line agreement lets the lender cut availability, suspend new draws, or decline renewal, typically at maturity or on a material adverse change. Availability is a commitment, not cash you own. This is why an approved and undrawn line is worth keeping clean and worth using before it disappears.

What is a clean up or resting requirement?

A clause requiring the outstanding balance to reach zero and stay there for a set stretch, commonly 30 consecutive days each year. It proves the line is funding a temporary gap rather than a permanent shortfall. Failing it is a covenant breach that can trigger a review even when every payment was made on time.

How fast can I get a business line of credit?

An online line on a complete file often issues in two to seven business days, with the first draw hitting your account within a day of acceptance. A bank line typically takes three to six weeks. Getting one approved before you need it is the only reliable way to have it when you do.

Keep reading

Line vs term loanRepeating need against one time need, with the numbers.Line vs business cardCash in the account against purchasing power at the register.How lenders read your statementsThe lines that decide your commitment amount.