How the cost of a line of credit works
Interest is charged on the outstanding balance, usually calculated daily and billed weekly or monthly. Draw $40,000 at 24 percent APR and repay it in 30 days, and the interest is about $790. Carry the same $40,000 for twelve months on a level repayment schedule and the interest is about $5,400. The calculator shows the twelve-month case; divide by twelve for a rough one-month cost.
Fees change the picture on lines more than on loans. A 2 percent draw fee on $40,000 is $800 before any interest, which on a 30-day draw roughly doubles the cost. A monthly maintenance fee of $25 to $100 applies whether or not you draw. Read the fee schedule before comparing rates.
| Payoff | At 12% APR | At 24% APR | At 40% APR |
|---|---|---|---|
| 30 days, lump sum | $400 | $790 | $1,315 |
| 6 months, level payments | $1,410 | $2,850 | $4,850 |
| 12 months, level payments | $2,650 | $5,400 | $9,300 |
Line of credit or term loan?
Use a line for needs that come and go: seasonal inventory, payroll between customer payments, a supplier discount. Use a term loan for a one-time purchase with a long payoff, where a fixed schedule and a lower rate beat flexibility. The comparison page on this site sets the two side by side; the short version is that a line is cheaper when balances are short and a loan is cheaper when they are long.
| Product | Amount to discuss | Time to fund | Pricing structure | Eligibility review |
|---|---|---|---|---|
| Business line of credit | Provider-specific; size to repayment capacity | Provider-dependent; confirm availability of funds | Interest or installment fees by provider; check draw and maintenance charges | Operating-history requirements vary by provider; Ask which personal and business credit checks apply |
| Business term loan | Provider-specific; size to repayment capacity | Provider-dependent; confirm availability of funds | Quoted interest and fees; compare net proceeds and total repayment | Operating-history requirements vary by provider; Ask which personal and business credit checks apply |
| Working capital loan | Provider-specific; size to repayment capacity | Provider-dependent; confirm availability of funds | Quoted interest or factor pricing and fees; compare the complete payment schedule | Operating-history requirements vary by provider; Ask which personal and business credit checks apply |
| Invoice factoring | Provider-specific; size to repayment capacity | Provider-dependent; confirm availability of funds | Contracted invoice fee, fee period, reserve and any additional charges | Provider assesses business and eligible invoices; Customer and owner checks depend on the agreement |
Qualifying for a business line of credit
Online lines generally require one to two years in business, $15,000 or more in monthly revenue, personal credit around 600 and up, and six to twelve months of clean bank statements. Bank lines want two years of returns and credit near 680, and often secure the line with receivables or inventory. Limits run $10,000 to $250,000 online and higher at banks. The requirements guide on this site has the product-by-product detail.