Not sure how a credit line differs from a regular loan? Here is the business line of credit explained: a revolving limit you draw from, repay and reuse, paying interest only on what you borrow.
This explainer is part of the wider topic of small business funding, and it covers general education only.
| Item | Value |
|---|---|
| Draw period range cited by Capital One (March 5, 2026) | 1 to 5 years, depending on the lender |
| Term loan repayment period cited by Capital One | Up to 10 years |
| Chase business line of credit size (existing Chase for Business customers) | $10,000 to $500,000 |
| Chase annual fee on that line | $200 or 0.25% of the approved line, whichever is greater, up to $750 |
| Chase minimum monthly payment on that line | 1% of principal plus accrued interest |
The figures come from Capital One’s guide dated March 5, 2026 and Chase’s business line of credit page. Terms vary by provider and country and can change, so check the source before you rely on them.
What a business line of credit is
Capital One’s March 5, 2026 guide describes a business line of credit as a form of revolving credit. You can borrow up to your approved credit limit, and your available credit is replenished as you repay what you’ve borrowed.
The same guide lists the short-term needs businesses typically use a line for:
- Managing cash flow gaps between expenses and incoming revenue
- Covering operating expenses during seasonal slowdowns
- Purchasing inventory or supplies
- Handling unexpected costs
- Supporting short-term growth
Credit lines sit in a wider borrowing market. Nav’s March 12, 2026 guide cites 2025 Federal Reserve data showing that 37% of small employer firms applied for a loan, line of credit, or merchant cash advance in the prior 12 months. That figure covers several products, not lines of credit alone.
How the draw period and repayment phase work
Most lines have a draw period, the window in which you can borrow. Capital One’s March 5, 2026 guide says it can range from 1 to 5 years, depending on the lender. BlueVine’s May 20, 2026 blog post says it commonly lasts 6-24 months, which shows how much the structure depends on the lender.
When the draw period ends, BlueVine says you typically can’t take new draws and must pay back the outstanding balance. Repayment may be interest-only during the draw period, or a mix of principal and interest on a fixed weekly or monthly schedule.
Nav’s March 12, 2026 guide walks through the usual sequence:
- You apply through a bank, credit union or online lender, often supplying business bank statements to verify revenue.
- If approved, Nav says the lender will usually give you a credit limit, the maximum you can borrow at one time.
- You draw funds as needed, typically by bank transfer or a card from the lender, and some lenders charge a draw fee each time.
- You make payments, which can be minimums, full payoff, or a fixed schedule depending on the lender.
Chase’s page gives one bank’s version. Its Business Line of Credit offers access to funds for 5 years with potential to renew, and after 5 years you have another 5 years to repay any balance, as Chase’s product page describes. Its rate is variable and indexed to Prime, which Chase says changes with the rate set by the Federal Reserve.
Secured and unsecured lines
A line is either secured or unsecured. Capital One says a secured line requires collateral, such as cash, inventory or real estate, while an unsecured line doesn’t but typically needs good to excellent credit to get approved.
BlueVine’s May 20, 2026 post sets out the trade-off in general terms:
- Secured lines often come with higher credit limits and lower rates, because collateral lowers lender risk.
- Unsecured lines usually cost more and are sometimes harder to qualify for.
Collateral is not the only form of backing. Capital One notes that some lines may require a personal guarantee, and Chase’s page says anyone with 20% or more ownership of the business must personally guarantee the debt in the case of default. Chase also states that it only offers secured lines of credit.
What a line of credit can cost
The core feature is that interest applies only to what you borrow. Capital One says you pay interest only on the amount you borrow from your credit line, not on the whole limit. BILL’s learning center adds that a variable rate changes with an index, while a fixed rate is set for the lifetime of the line.
Fees can change the picture. Capital One says common fees include origination fees, annual fees or monthly maintenance fees, and that you may encounter more fees with lines of credit than with business loans.
Chase’s page shows how one bank prices its own products:
- Business Line of Credit: no application or origination fees.
- According to Chase’s business line of credit page, the annual fee is $200 or 0.25% of your approved line of credit, whichever is greater, up to a maximum of $750.
- After the first year, the fee is waived if you use at least 40% of your credit, averaged over 12 months.
- Commercial Line of Credit: an origination fee of 0.15% of the approved line amount, with a $3,000 maximum.
Those are one US bank’s terms and are not typical of every lender. Capital One also lists drawbacks: easy access can lead to overborrowing, and lenders may lower your credit limit or freeze the line if you violate the terms or your business’s financial performance declines.
How a line differs from a term loan
Capital One contrasts the two on several points:
- Funds: a loan provides a lump sum upfront, while a line lets you draw only when you need money.
- Repayment: lines often run shorter, commonly one to five years, while term loans may be up to 10 years.
- Interest: a term loan’s fixed payments cover the full amount, while a line charges interest only on the amount used.
Other structures exist too. Chase’s page describes SBA Express lines of credit for amounts up to $500,000, and a separate explainer covers what is an SBA loan in more general terms.
For borrowing tied to a specific asset, the guide on what is equipment financing explains a different structure.
What lenders typically look at
Capital One says lenders consider factors such as creditworthiness, revenue and years in business. The thresholds differ widely, so published examples are best read as illustrations, not benchmarks.
- BlueVine’s May 20, 2026 post says its line requires a 625+ FICO score, $10,000 in monthly revenue, and 12+ months in business.
- Chase’s page lists business annual revenue of at least $100,000, a FICO score of at least 660, and no change in majority ownership and management in the past two years.
- BlueVine adds that traditional bank requirements are usually stricter, including two years of business history.
Applying can also leave a mark. Chase’s page says an application results in an inquiry on both your personal and business credit reports.
On the upside, Capital One says that on-time payments may help build business credit if the lender reports the activity to the credit bureaus.
Frequently asked questions
Do you pay interest on the full credit limit?
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Not according to Capital One, which says you pay interest only on the amount you borrow. Check each lender’s fee schedule, because draw, annual or maintenance fees may apply regardless.
Is a line of credit like a business credit card?
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Capital One compares the two because both are revolving credit. Access methods vary by lender, and may include bank transfer, check or a debit card linked to your business checking account.
Can a lender change your limit?
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Capital One says lenders may lower your credit limit or freeze the line if you violate the terms or your business’s financial performance declines. Read the agreement for the specific triggers.
Does a line of credit require a personal guarantee?
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It depends on the lender. Capital One says some lines may require one, and Chase’s page says anyone with 20% or more ownership must personally guarantee its line.
This page is for general information and education only and is not financial, investment, tax or legal advice.
