Key takeaways
- Business line of credit rates range from 8 percent all the way up to 60 percent or higher, depending on the lender and the borrower's creditworthiness
- The best rates are offered to established business owners with good-to-excellent credit
- Business lines of credit may come with additional fees, such as annual fees, origination fees, draw fees and maintenance fees
A business line of credit can have an APR that ranges from 8 percent all the way up to 60 percent or higher. According to the Small Business Lending Survey, average rates for new business lines of credit in Q1 2024 were between 7.58 percent to 9.35 percent, depending on the type of credit line.
Since lenders aren’t required to display their rates, it’s difficult to pinpoint how much you’ll end up paying without applying first. What is known is that the best business lines of credit offer the lowest rates to established small business owners with good-to-excellent credit. You’ll deal with higher interest rates and fees if you’re a business startup or an owner with poor credit. You also have to shop around more carefully to get the most affordable line of credit.
Here’s a look at some of the current business line of credit rates and tips to help you find the right line of credit.
Current business line of credit rates
As with any financing, terms and interest rates on business lines of credit may vary between lenders and change based on market conditions. Here are current interest rates from some of the most popular business line of credit lenders.
| Lender | Line of credit starting rates |
|---|---|
| Fundible | 1.00% monthly rate (average) |
| SMB Compass | 7.99% APR |
| Bank of America | 9.50% APR |
| Wells Fargo | 10.25% APR |
| Bluevine | 7.80% simple interest |
| Lendio | 8.00% to 60.00% APR |
| Backd | 30.00% APR |
| OnDeck | 55.90% APR (average) |
| Fundbox | 4.66% or 8.99% weekly fee |
| TD Bank | 9.24% APR |
| American Express® Business Line of Credit | Total monthly fees: 3.00% to 9.00% for 6-month terms 6.00% to 18.00% for 12-month terms 9.00% to 27.00% for 18-month terms 12.00% to 18.00% for 24-month terms |
Rates accurate as of 7/19/2024
Bankrate insight
Loan amounts for business lines of credit can vary. While some lenders may offer maximum loan amounts in the millions of dollars, your credit score and time in business may make you eligible for less, such as $100,000.
What is the interest rate on a business line of credit?
The interest rate on your line of credit represents how much your lender is charging for the borrowed amount. Unlike a loan, a business line of credit works like a credit card. It’s a revolving loan, which means that you can borrow from the credit line repeatedly. If you don’t have any outstanding loans, you may have a zero balance with the line of credit.
The lender sets a credit limit, the maximum you’re able to borrow from the lender. You’re only charged interest for the money you currently owe against the line but not for the entire amount of available credit.
For instance, if you borrow $5,000 from your $50,000 available credit limit, the interest charges only apply to the outstanding $5,000.
You’ll want to compare a few different lines of credit since the terms you’re offered may vary significantly based on the lender. These factors are also relevant:
- Credit scores. Your business credit score and personal credit score may affect your interest rate and your ability to qualify for a line of credit. Most traditional banks will want to see a personal credit score of at least 670 or higher, while online banks may go down to 625 or 600.
- Time in business. Most lenders want to see one to two years in business for a line of credit, though some online lenders will go down to six months. Lenders may offer a larger credit limit with better terms to established businesses.
- Business income. A lender is also likely to consider your business revenue and other financial health indicators, rewarding you with a low interest rate if your business is low-risk financially. Traditional banks may want to see $150,000 to $250,000 in income yearly, while many online lenders accept $100,000.
Types of interest rates charged
Unlike consumer lenders, business lenders charge interest rates in different ways, making it difficult to compare borrowing costs side by side. But you can understand the types of interest being charged to help you make a more informed decision.
Factor rates
Some lenders offer business lines of credit using factor rates, which are expressed as a decimal instead of a percentage. For example, if you take out a loan for $50,000 with a factor rate of 1.2, the loan’s interest would cost $10,000 ($50,000 x 1.2 = $60,000). That figure doesn’t include any other fees.
Bankrate insight
Check out our guide on factor rates for a better understanding, including how to convert factor rates to an annual interest rate. You can more easily compare lines of credit with different lenders and understand your loan’s true cost.
Interest rates vs. weekly or monthly fees
Most lenders show business loan interest rates in the form of an annual percentage rate (APR). The APR gives you a complete picture of borrowing costs over the course of the year, including interest and fees. Some lenders also show simple interest, which doesn’t include fees in the calculation.
Other lenders charge weekly or monthly fees on outstanding balances instead of interest rates. This also doesn’t give you a complete picture of how much you’ll truly pay.
While these fees look far lower than APRs, they could cost you more in total interest. Review the total loan cost in the loan agreement and compare it against other business loans.
Bankrate insight
Another option to consider is an SBA line of credit. The SBA offers revolving and non-revolving lines of credit with the benefit of set interest rates. As of July 2024, the starting interest rate for an SBA line of credit starts at 11.50 percent.
Business line of credit fees
The interest rate doesn’t represent the only costs of using a line of credit. Other fees you might run across:
- Annual fee: The annual fee is a flat fee, usually under $200, that your business may be charged each year to keep your line of credit open.
- Origination fee: If your line of credit charges an origination fee, it is usually a percentage of the loan amount. The fee is charged at the time that a new line of credit is opened.
- Draw fee: You may also be charged a fee every time you make a withdrawal from the line of credit. This fee often equals up to three percent of the amount withdrawn.
- Maintenance fee: A lender may charge a maintenance fee to keep the line of credit open. It is charged even when an account goes unused.
How to get the best interest rates on a business line of credit
Here are some tips to help you get a business line of credit with affordable rates and low fees.
- Shop around. Banks, credit unions and online lenders offer business lines of credit. But to find the best interest rate, you’ll have to compare business lines of credit from at least three lenders. Look for the lowest rates that you’re eligible for based on your credit history, annual business revenue, years in business and other business factors.
- Build your credit scores. The higher your credit score, the better your interest rates. You can build business credit by making payments on time and keeping your total debt amount low.
- Consider a secured line of credit. While this type of credit line is not as appealing as unsecured lines of credit, lenders are more willing to offer favorable terms if you can put up an asset as collateral. The asset acts as security for the loan and reassures the lender that they will not come away empty-handed if you default on the loan.
Alternatives to business lines of credit
A business line of credit comes with downsides and is far from the only way to get an injection of cash into your business. The following are some of the most common types of business loans and financing.
A term loan may be the right choice if your business needs a set sum of cash at once versus having access to funds over time. If you’re going through a traditional bank, business term loans may require extensive documentation and can be slow to fund.
On the plus side, traditional banks offer higher loan amounts if you’re qualified. Yet loans from alternative lenders like online lenders are accessible to a broader group of small business owners. This includes startups and business owners looking for bad credit business loans.
Peer-to-peer lending is a type of alternative business loan backed by individual lenders or groups of lenders instead of a traditional bank. These loans may not have strict credit score requirements when compared to bank financing. But they can have high interest rates or loan fees. Peer-to-peer lending is usually best for business owners who need fast cash or haven’t had luck getting any other type of bad credit business loan.
Both lines of credit and credit cards are revolving lines of funding, but each has its advantages and disadvantages. Business credit cards may also come with 0% promotional periods and the chance to earn rewards on purchases. They also have easier repayment terms and can remain open for years, while your line of credit may have a maturity date. A line of credit can have higher funding, but a credit card won’t require an origination fee or the same maintenance fees as a line of credit.
Invoice factoring and financing allow you to use your unpaid invoices to gain quick access to financing. With invoice factoring, you sell your outstanding invoices to a factoring company. Invoice financing is more similar to a loan or cash advance, advancing money based on a percentage of your unpaid invoices. In either case, your invoices act as collateral for the financing. This type of financing may work when you’re in a bind, but it’s likely to be more expensive than a line of credit.
Merchant cash advances (MCAs) calculate the amount of financing you receive on past credit and debit card sales. MCAs are a type of business loan for bad credit borrowers and business owners who can’t qualify for fast, short-term funding through a traditional lender. While this is one of the most easily accessible loans, it comes with high interest rates and the risk of falling into a cycle of debt if you can’t pay it off quickly.
Bottom line
A business line of credit is a flexible financing option that can help small business owners gain access to much-needed cash to support the business’s growth. You draw funds to cover business expenses and only pay interest on the amount you use.
Keep in mind that the repayment terms are typically short, such as 12 or 18 months, and maximum loan amounts may be lower than other business loans. So, they generally work best as a short-term solution. Be sure to compare multiple small business loans to get the best rates and loan features available for your business.
Frequently asked questions
Interest rates on a business line of credit vary. You might find ratesranging from 8 percent to 60 percent, depending on your credit score. The lower your credit score, the higher your overall cost of your business line of credit due to high interest rates and fees.
Most lenders offering business lines of credit prefer borrowers with at least fair credit. You might qualify for a business line of credit with a bad business or personal credit score. But you should expect higher-than-average interest rates. Customers with bad credit often have better luck with alternative lenders than traditional banks.
With most business lines of credit, the repayment period begins once you draw funds from the available credit limit. Once the repayment period begins, you often have between six months and five years to repay any money you withdrew. The amount of time you have for repayment depends on the terms outlined in your loan agreement.
Some lenders may require a business plan and other business loan documentswhen applying for a business line of credit. If you need help writing a business plan, many organizations offer assistance, including the SBA, SCORE and your local chamber of commerce.
