A business line of credit can have an APR that ranges from 8 percent all the way up to 60 percent or higher. And since lenders aren’t required to display their rates, it’s not possible to pinpoint an average business line of credit 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. If you’re a business startup or an owner with poor credit, you’ll have to deal with higher interest rates and fees. You’ll 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 some tips to help you find the right line of credit for your business.

Current business line of credit rates

As with any type of financing, terms and interest rates on business lines of credit may vary between lenders and change based on market conditions. Here are interest rates from some of the most popular lenders.

Rates accurate as of 02/22/2023

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 you for the money you receive. Unlike a loan, a business line of credit works like a credit card: It’s revolving and may sometimes have a zero balance. You are only charged interest for any money you currently owe against the line but not for the entire amount of available credit.

For instance, if your business line of credit is for $50,000 but you currently owe $5,000, interest charges only apply to the outstanding $5,000.

One of the reasons it’s wise to compare a few different lines of credit is that 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.

• Amount of time in business. Lenders may offer a larger line of credit with better terms to businesses that are more established. Some lenders require you to be in business for at least two years, though some 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 are less of a risk you may be rewarded with a good interest rate.

Interests rates vs. weekly or monthly fees

Most lenders show business loan rates in the form of an annual percentage rate (APR), which gives you a complete picture of what you’ll owe in a year, including interest and fees. Some lenders will also show simple interest, which only shows interest without fees.

But some 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 you see with most business loans, they could end up costing you more. For example, depending on the total amount you owe, any fees and the time it takes to pay it off, a 2 percent monthly fee could be the equivalent of a 15 percent APR or higher.

Business line of credit fees

The interest rate on your line of credit doesn’t represent the only costs of your line of credit. Here are a few other fees you could find with your business line of credit.

• Annual fee: This is a flat fee, usually under $200, that your business may be charged each year that you keep your line of credit open.

• Origination fee: If your line of credit charges an origination fee, it is usually a percentage of the line’s total value. The fee is charged once when 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 could equal up to 2% of the amount withdrawn.

• Maintenance fee: A maintenance fee is what a lender may charge you to keep the line open. It is often charged for unused accounts and assessed either monthly or annually.

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, looking for the lowest rates you are 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 personal credit by making on-time payments and keeping your level of debt low. Building business credit is a similar process, though you’ll also need to register your business as a corporation or LLC.

• 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’re able to put up an asset as collateral. This acts as security for the loan and reassures the lender that they will not come away empty-handed if you were to default.

Alternatives to business lines of credit

A business line of credit is far from the only way to get a much-needed injection of cash into your business. There are traditional bank loans, credit cards, and alternative lending sources. The following represent some of the most common types of business loans and financing.

Business loans

A loan may be the right choice if you want all of your money at once and don’t need revolving credit. If you’re going through a traditional bank, business loans require a lot of documentation for approval and can be slow to fund.

On the plus side, traditional banks offer higher business loan amounts if you’re qualified, and loans from alternative lenders are accessible to a broader group of small business owners. This includes startups and people looking for bad credit business loans.

Business loans also come with better interest rates and longer repayment terms.

Peer-to-peer (P2P) 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 also have high interest rates, though you may be able to secure a better interest rate with good credit. This type of lending is usually best for businesses that 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. 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. 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.

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 a loan and your invoices act as collateral. 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.

Bottom line

A business line of credit is a flexible financing options that can help small business owners gain access to some much-needed cash. You draw funds to cover business expenses and only pay interest on the amount you use.

Keep in mind that the interest rates and repayment terms aren’t as favorable as a traditional business loan. So they generally work best as a short-term solution. If a business line of credit sounds like a good fit for your business, make sure you shop around to get the best rate.

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 be able to find low rates that range from 10 percent to 15 percent if you have great credit. But interest rates can soar as high as 60 percent or higher, especially if you don’t have good credit.

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

  
  

  Most lenders who offer business lines of credit prefer borrowers who at least have fair credit. You may be able to get 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?

  
  

  Lines of credit typically have a draw period and a repayment period. Once your draw period ends and the repayment period begins, you often have between six months and five years to repay any money you withdrew.

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