Business lines of credit, priced by the draw

The full guide

A limit you draw, repay and reuse

A line of credit is borrowing on standby. The lender approves a limit, say $100,000, and you take money only when you need it. Each withdrawal is a draw. If you draw $40,000, you owe interest on $40,000 and still have $60,000 available.

The line is revolving: as you pay down principal, that amount becomes available again. Published limits among lenders we track often run from $5,000 to $250,000, with a few going to $1 million or more for businesses with large revenue.

How you repay depends on the lender. Some lines let you carry a balance and pay interest as you go. Many online lines turn each draw into a short installment schedule instead. One lender we track amortizes draws over 3 to 18 months and notes that the term may reset every time you draw. Another has you repay weekly over 6 or 12 months.

Some lines are secured. One lender we track lists lines of credit among the products that typically require collateral, which can mean a lien on business assets. Ask whether the lender files a UCC-1 and whether it covers specific assets or all of them.

Annual rates, monthly rates and draw fees

An annual interest rate

Interest accrues on the drawn balance. One broker we track describes typical line APRs from prime plus 3% on the strongest files to the mid-20s on thinner ones.

A monthly rate

One online lender we track publishes a monthly interest rate of 3% to 5%. At 3% a month, you pay 36% a year before any fees. At 5% a month, it is 60%. Always convert to an APR before you compare with a loan or an advance.

Draw fees and other charges

One broker we track says many lenders charge a 1% to 3% fee per draw. On the $40,000 draw in our example, a 2% fee is $800 taken up front, which lifts the estimated APR from 36% to about 40%. Our MCA vs line of credit guide compares these costs with an advance.

Each draw starts its own clock

The line stays open while you repay. After 6 monthly payments, $18,231.08 of principal has been repaid and is back in your available balance. If you draw again, that new draw starts its own schedule, and your total payment is the sum of every open draw.

That is where lines get expensive without anyone noticing. Draw $15,000 in March, $20,000 in May and $10,000 in July and you may carry 3 overlapping schedules. Keep a simple list of each draw, its payment and its end date. Ask, too, whether paying a draw off early saves the remaining interest or triggers a fee. The loan calculator shows the payment and amortization for any draw.

Weekly vs monthly on a $40,000 draw

In the example, weekly payments save $453.91 in interest because principal falls sooner. The trade is cash flow. Weekly debits average $3,980.64 a month, but a month with 5 payment dates takes $4,593.05, more than the monthly plan's $4,018.48.

Match the schedule to how money arrives. A restaurant with daily card deposits can handle weekly debits. A contractor paid by monthly draws on a job may not. Lenders we track offer daily, weekly or monthly options, and some let you choose.

If you can, ask the lender to set the debit for the day after your largest regular deposit. A weekly debit that lands the morning after your busiest day is less likely to bounce.

Whatever the schedule, the ACH debit will come out on its date. A payment that bounces can cost you an NSF fee from your bank and a mark on the statements the next lender will read.

Using a line without letting it use you

Good uses have an exit. Inventory for a busy weekend that sells within weeks, a 30-day gap before a customer pays, or a repair that keeps revenue flowing all repay the draw from money the draw helped create. Paying another lender, or covering the same shortfall every month, only moves the problem onto a new balance.

Watch for signs the line has become permanent debt. If the balance never falls, if you draw to make the line's own payments, or if every month ends at the limit, the line is financing losses. That calls for a look at pricing and costs, or a longer term loan, not a bigger limit.

Scores, history and statements lenders check

Credit carries more weight here. Published minimum scores among lenders we track run from about 600 to 700, and one lender we track says applications for the lines it offers start at a 700 score. Time in business matters too: some lenders want 6 months, others up to 2 years. Revenue floors range widely, from $10,000 a month to one lender that asks for $100,000 a month alongside a 650 score.

Your statements still do much of the talking. Lenders read average balances, deposit trends, NSFs and existing debits to decide the limit. A clean 4 months with no bounced items and no stacked advances tends to support a larger line than the same revenue with overdrafts. Our documents guide lists what to have ready.

Openbook Capital matches your file to lenders whose published criteria fit, names each one before we submit and shows every offer with its rate, fees, payment schedule and estimated APR. Apply in about 3 minutes, with no SSN and no bank login at that step.

Pros and cons