A business line of credit is a revolving funding facility that gives you access to capital up to a set limit. Unlike a term loan or MCA that provides a lump sum, a line of credit lets you draw funds as needed, repay them, and draw again — similar to how a credit card works but typically with better terms and higher limits.
How it works: a lender approves you for a credit line of, say, $75,000. You can draw $10,000 today for an equipment repair, another $25,000 next week for inventory, and leave the remaining $40,000 untouched. You only pay interest on the amount you have drawn — not the full credit line. As you repay, that credit becomes available again.
Interest rates and costs: business lines of credit typically carry rates of 8 to 80 percent APR depending on the source. Traditional bank lines are the cheapest (8 to 20 percent APR) but hardest to qualify for. Online lenders like BlueVine offer lines at 15 to 50 percent APR with easier qualification. Some fintech lenders charge higher rates for higher-risk borrowers.
Qualification requirements vary by lender. Bank lines of credit require 680 or higher credit score, 2 or more years in business, strong financials, and often existing banking relationships. Online business lines of credit are more accessible: 600 or higher credit, 6 or more months in business, and $50,000 or more in annual revenue.
Line of credit vs MCA: a line of credit is cheaper, more flexible, and reusable. An MCA is faster to obtain, easier to qualify for, and available to businesses that cannot get lines of credit. If you can qualify for a line of credit, it should be your first choice. If you cannot — due to credit issues, limited time in business, or revenue constraints — an MCA is a legitimate alternative.
When to use a line of credit: managing cash flow gaps between receivables, handling seasonal inventory needs, covering unexpected expenses, and taking advantage of bulk purchase discounts. The flexibility of drawing only what you need, when you need it, makes lines of credit ideal for ongoing working capital needs.
The best strategy: apply for a business line of credit proactively — before you need it. Having an approved, unused line of credit gives you a safety net for emergencies. If your application is declined, an MCA provides a faster alternative while you work on strengthening your profile for future line of credit approval.