A Line of Credit (LOC) is revolving access to capital up to a pre-approved limit. Draw when you need it, repay, draw again. You only pay interest on what's actually drawn. It's the right financing tool for variable working-capital needs (inventory peaks, payroll gaps, ad-spend ramps) where a fixed lump sum from a term loan would be either too much or too little.
Provider landscape
- Banks (Wells Fargo, Chase, Comerica, regional commercial banks): cheapest at 9 to 12 percent annual percentage rate (APR). Hardest to qualify for.
- Neobanks and fintechs (Mercury, Brex, Relay, Highbeam): faster qualification, 12 to 22 percent APR.
- DTC-focused lenders (Capchase, Parker, certain Wayflyer products): targeted to ecommerce brands, 15 to 30 percent APR.
Typical structure
- Limit: 10 to 25 percent of annual revenue, depending on the lender
- Term: 1 to 3 year revolving facility, renewed annually
- Interest: paid monthly on whatever balance is drawn
- Fees: origination 0.5 to 2 percent, annual maintenance 0.25 to 1 percent
- Covenants: minimum revenue, debt service coverage ratio (DSCR), and usually a personal guarantee (PG) from the founder
Bank LOC qualification (the reality)
What banks actually look at:
- Revenue scale (usually $5M+ minimum)
- Profitability or a visible path to it
- Time in business (typically 2+ years)
- Existing banking relationship and average deposit balance
- Personal guarantee from the founders
- Credit history (both founder and business)
The most common mistake
Waiting until you actually need the LOC to apply. Banks take 6 to 12 weeks to underwrite and approve. The right time to set one up is when you don't need it. The only time a bank moves fast is when they're chasing you. Apply during a healthy quarter, get approved, then draw when you need it later.
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Frequently Asked Questions
how does a line of credit actually work?
Think of it like a business credit card with way more headroom. You're approved for a limit, draw any amount up to that limit when needed, pay it back, draw it again. You only pay interest on what's actually drawn. Unlike a term loan, which gives you a fixed lump sum, an LOC matches borrowing to your actual cash needs.
bank loc vs neobank loc, what's the difference?
Banks are cheapest (9 to 12 percent APR) but want strong financials, an existing banking relationship, audited statements, and usually a personal guarantee. Neobanks (Mercury, Brex, Relay, Highbeam) approve much faster but charge more, 12 to 22 percent APR. DTC-focused lenders (Capchase, Parker, certain Wayflyer products) sit in between at 15 to 30 percent.
what do banks actually look at to approve an loc?
Six things: revenue scale, profitability or path to it, time in business, banking relationship and deposit balance, a personal guarantee from the founder, and credit history. Banks want predictable cash flow, so highly seasonal brands or those with concentrated customer risk often struggle to qualify at the bank level and end up with neobanks instead.