Introduction
Starting a business requires capital — but taking a large loan isn’t always the smartest move.
A business line of credit gives startups flexible access to funds. You only borrow what you need and pay interest only on the amount used.
In this 2026 guide, we explain:
- What a business line of credit is
- How startups qualify
- Interest rates & fees
- How to improve approval chances
- Best lender types
This funding option is ideal for managing cash flow, inventory, payroll, or short-term expenses.
What Is a Business Line of Credit?
A business line of credit (LOC) works similar to a credit card:
- You get approved for a credit limit
- You draw funds as needed
- You repay and reuse the credit
- Interest applies only to used amount
Example:
- Approved limit: $50,000
- You use: $10,000
- Interest charged only on $10,000
This makes it more flexible than a traditional loan.
Why Startups Choose a Line of Credit
Startups often face:
- Irregular cash flow
- Unexpected expenses
- Seasonal revenue fluctuations
A line of credit provides financial cushion without locking into long-term debt.
Requirements to Qualify (2026)
While requirements vary by lender, common factors include:
- Business operating for 6–12 months
- Minimum monthly revenue ($5,000–$10,000+)
- Personal credit score (typically 600–680+)
- Business bank statements
- EIN and business registration
New startups with no revenue may find approval challenging but not impossible.
Types of Business Lines of Credit
1. Secured Line of Credit
- Backed by collateral
- Lower interest rate
- Higher approval chances
2. Unsecured Line of Credit
- No collateral required
- Higher interest rates
- Based on creditworthiness
Most startups begin with unsecured options.
Interest Rates and Fees
Typical rates in 2026:
- 8% – 25% APR (depending on credit & lender)
Common fees include:
- Origination fee
- Maintenance fee
- Draw fee
- Late payment fee
Always review total borrowing cost before signing agreement.
How to Increase Approval Chances
1. Improve Personal Credit Score
Higher credit score = lower interest rate.
2. Maintain Strong Cash Flow
Lenders prioritize consistent deposits.
3. Open Business Bank Account
Separate personal and business finances.
4. Register Your Business Properly
LLC or Corporation structure often preferred.
5. Reduce Existing Debt
Lower debt-to-income ratio improves credibility.
Best Lender Options for Startups
Traditional Banks
- Lower rates
- Strict approval requirements
Online Lenders
- Faster approval
- Flexible requirements
- Higher interest
Credit Unions
- Competitive rates
- Community-based lending
SBA Programs
- Government-backed
- Lower risk for lenders
- Longer approval time
Online lenders are usually faster for startups needing urgent funding.
Business Line of Credit vs Business Loan
| Feature | Line of Credit | Business Loan |
|---|---|---|
| Flexibility | High | Low |
| Interest Charged | On used amount only | On full loan |
| Repayment Structure | Revolving | Fixed |
| Best For | Short-term needs | Large long-term investment |
Startups often prefer line of credit for flexibility.
When a Line of Credit Makes Sense
It is ideal if you need:
- Inventory purchase
- Payroll support
- Marketing campaigns
- Emergency expense coverage
- Cash flow smoothing
It is not ideal for:
- Large equipment purchases
- Real estate investments
Risks to Consider
- High interest if credit is weak
- Overspending due to easy access
- Short repayment cycles with some lenders
Responsible financial planning is essential.
Frequently Asked Questions
Can a brand-new startup get a line of credit?
Yes, but approval is harder without revenue history.
What credit score is needed?
Generally 600+ minimum, but 680+ gets better rates.
Is a business line of credit tax deductible?
Interest paid may be deductible as business expense — consult tax advisor.
Final Thoughts
A business line of credit offers flexibility and financial control for startups navigating uncertain cash flow.
Before applying:
- Compare at least 3 lenders
- Review APR and fees
- Understand repayment structure
- Borrow only what is necessary
Smart funding decisions help startups grow sustainably without overwhelming debt.