Average business line of credit interest rates

A business line of credit can have an APR that ranges from 8 percent all the way up to 60 percent or higher. Since lenders aren’t required to display their rates, it’s not possible to pinpoint an average business line of credit interest rate.

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.

Rates accurate as of 1/10/2024

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. The better your scores, the lower your rate is likely to be.
• Time in business. Lenders may offer a larger credit limit with better terms to established businesses. Some lenders require you to be in business for at least two years, while other lenders are more lenient.
• Business income. A lender is also likely to consider your business revenue, cash flow, balance sheet and other financial health indicators when they assess the risk associated with lending to you. If you’re low risk, you may be rewarded with a low interest rate, such as a 6 percent or 8 percent APR (annual percentage rate).

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.

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 the APRs, they could cost you more in total interest. You can look at the total loan cost in the loan agreement to compare it against other business loans.

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 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 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.

• Business term loans

  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

  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.

• Business credit cards

  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 or invoice financing

  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 you 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

  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

• What is the typical rate on a business line of credit?

  Interest rates on a business line of credit vary. You might find rates ranging from 6 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.

• Can you get a business line of credit with bad credit?

  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.

• How long do you have to pay off a business line of credit?

  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. 

• Do you need a business plan to get a line of credit?

  Some lenders may require a business plan and other business loan documents when 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.