Small businesses, even very successful ones, may need access to cash from time to time. There’s just one problem: securing business financing from banks or online lenders can be a time-consuming process.
If only there was a way for small business owners to fill out one application, borrow what they need, pay it back, and borrow again from the same source the next time they need cash.
There is a financial tool that works exactly like that. It’s called a business line of credit. It’s one of the most popular and flexible types of small business financing. But it’s not right for every situation.
Here’s how to decide whether a business line of credit is a good choice for your small business.
What is an unsecured business line of credit?
An unsecured business line of credit is a revolving credit facility that lets you borrow up to a preset limit without collateral. Unlike traditional term loans that give you a lump sum when you get a loan, you draw funds as needed and only pay interest on what you use.
Think of it like a business credit card but with typically higher limits and sometimes lower rates. Once approved, you can access funds repeatedly during the draw period (more on that in a moment), as long as you stay within your credit limit and make required payments.
In some states, lenders are required by law to provide additional disclosures — like effective APR, fee schedules, or cost of funds — when making offers for commercial credit.
How an unsecured line of credit works
Most unsecured business lines of credit operate on a two-phase structure: a draw period followed by a repayment period, though not all lenders work this way. During the draw period (typically 12–24 months but sometimes as long as 10 years), you can borrow against your credit line and make interest-only payments on the outstanding balance. You're free to pay down the principal and reborrow as needed during this time.
Once the draw period ends, you enter the repayment period where you can no longer access new funds. Instead, you'll make fixed monthly payments that include both principal and interest until the balance is paid off. Some lenders offer interest-only payments throughout the entire term, requiring you to pay the full principal at maturity.
Most lines of credit require annual renewals where the lender reviews your business's financial health and creditworthiness. If approved, your line continues for another term. If not, you may need to pay down the balance according to the lender's timeline. This renewal process means maintaining strong business credit and solid financials can be crucial for ongoing access to credit.
Pros and cons of an unsecured line of credit
Pros
- Flexibility: Borrow only what you need, when you need it
- No collateral risk: Your business assets remain unencumbered
- Revolving access: Credit becomes available again as you repay
- Interest efficiency: Pay interest only on borrowed amounts
- Quick access: Many online lenders offer same-day or next-day funding
Cons
- Higher rates: Actual rates may be higher or lower depending on factors like your credit profile and the lender, but you may find an 8%–30% APR compared to a potential 5%–18% for secured lines or some term loans
- Stricter qualification: Requires strong credit scores and financials
- Personal guarantee: Most lenders require owners to guarantee repayment
- Lower limits: Typically $10,000-$250,000 vs. higher secured limits
- Annual fees: Many charge $50-$500 annually regardless of usage
Secured vs. unsecured business line of credit
With a secured loan, you pledge collateral that the lender can take if your business defaults on the loan. Some bank and SBA loans may even require you to pledge home equity or personal assets if you don’t have enough business collateral to fully secure the loan.
Collateral can mean lower rates, but it’s more risky for you, the borrower, because if you can’t pay back the debt you may lose the collateral.
Factor | Secured | Unsecured |
Collateral required | Yes (real estate, equipment, inventory, accounts receivable) | No |
Interest rates | May be between 5%–18% APR | May be between 8%–30% APR |
Credit limits | $50,000–$5M+ | $10,000–$250,000 |
Qualification | Easier with collateral | Requires strong credit |
Personal guarantee | Sometimes required | Usually required |
Asset risk | Collateral at risk if you default | No collateral |
Approval time | 2–4 weeks (appraisal needed) | 1–7 days |
Who should get an unsecured line of credit?
Unsecured lines of credit are one of the most popular types of small business financing.
According to the Federal Reserve’s 2025 Small Business Credit Survey, lines of credit were the second most popular type of financing applied for by businesses with employees (22%), closely behind loans (25%).
These kinds of businesses may want to consider an unsecured line of credit:
Service-based businesses
Unsecured business lines of credit can work particularly well for service-based companies that don't have equipment, inventory, or real estate to use as collateral. Think consulting firms, marketing agencies, or professional services practices where your main assets are expertise and client relationships rather than physical property.
Established businesses
These credit lines also make sense for established businesses with at least two years of operating history and solid financial records. Lenders want to see consistent revenue and responsible financial management before they'll extend credit without collateral backing the loan.
Seasonal businesses
Seasonal businesses often find unsecured lines of credit especially valuable. If you run a landscaping company that generates most revenue in spring and summer, or a tax preparation service with income concentrated in the first quarter, having flexible access to funds helps smooth out those natural cash flow fluctuations. You can draw money when you need it for payroll or supplies during slow periods, then pay it back when revenue picks up.
Growing businesses
Growing companies frequently choose unsecured lines to preserve their valuable assets for future expansion opportunities. Rather than pledging equipment or real estate that might be needed as collateral for a larger expansion loan later, they use unsecured credit for working capital needs.
Business owners wanting to avoid personal guarantees
Some business owners simply prefer avoiding a personal guarantee —which means you're personally responsible for debts your business fails to pay — or asset pledges when possible. If you're risk-averse and want to keep your business and personal finances separate, unsecured options may align with that approach.
When to consider other financing options
However, an unsecured line of credit might not be your best choice in several situations. If you own valuable business assets and qualify for significantly better rates by pledging collateral, a secured line could save you thousands in interest costs over time.
These products work best for ongoing, variable expenses rather than one-time large purchases. If you need a specific amount for equipment or expansion, for example, a traditional term loan with fixed payments might be more appropriate than a revolving credit line.
Similarly, if you prefer predictable monthly payments for budgeting purposes, a term loan's fixed structure could be easier to manage than the variable payments that come with a line of credit.
Credit requirements for unsecured lines are typically higher than secured options. If your personal and business credit isn’t strong, you may face high interest rates or struggle to qualify at all. In those cases, working on your credit scores or considering secured alternatives might be more practical.
If you are thinking about getting a line of credit, you may want to shop sooner rather than later. You’ll have more time to shop for the best offer, and you won’t have to scramble if you need working capital right away.
Top-rated unsecured business LOC lenders and platforms in 2025
Here are some popular options from Nav’s trusted partners:
Line of Credit by OnDeck
Monthly Payments and extended repayment terms (18 and 24 month terms) available. A line of credit can be a great asset to businesses who need capital on hand- fast. It allows you the flexibility to draw funds when you need it, and you only pay interest on what you use. Once approved, you can draw available funds quickly and easily without having to provide additional documentation.
Pros
- No monthly maintenance fees
- Monthly Payments available and Extended Repayment Terms (12, 18 and 24 months) Minimal paperwork
- As soon as same-day approval and funding sent by next business day
- Transparent pricing
- Use as much as you need, only pay interest on what you use
- Access available funds with one click.
Cons
- Not available in all states.
Funding Amount
Cost
Repayment Terms
Funding Speed
Line of Credit by Fundbox
Nav recommends this product as a great solution for newer small businesses looking for a fast application process and access to a flexible LOC product. Bonus: When you click 'Apply now," we'll securely pass over your info, making applying with Fundbox a breeze. Only answer a few additional questions on their end and you're good to go.
Pros
- 625 minimum personal credit score
- No impact to credit score to apply (soft pull only)
- No draw fees
- Fast approval and funding, with funds available as soon as the next business day
- Use as much as you need, only pay interest on what you use
- Fundbox reports payment activity to all the major commercial credit bureaus via the Small Business Financial Exchange (SBFE), which can help strengthen a business's credit profile.
Cons
- Must have a business checking account with a minimum balance of $500
- May require large weekly payments (0.4% - 0.7% of the original draw amount per week) due to the short repayment duration.
Funding Amount
Cost
Repayment Terms
Funding Speed
Line of Credit by Headway Capital
Headway Capital provides businesses with a true revolving Line of Credit with no pre-payment penalties, one fixed monthly payment, and the ability to access additional capital any time you have funds available. Bonus: When you click 'Apply now," we'll securely pass over your info, making applying with Headway a breeze. Only answer a few additional questions on their end and you're good to go.
Pros
- Pre-approval process does not require hard personal credit inquiry
- Approval within hours of applying
- Only pay interest on what you use
- Offers 24-month repayment terms and monthly payments.
Cons
- Interest rates can be higher than some other line of credit providers
- Hard personal credit inquiry at the time of funding.
Funding Amount
Cost
Repayment Terms
Funding Speed
Line of Credit by SmartBiz
Must have at least 2 years time in business, 660 minimum FICO score needed. Monthly payment options available at fixed interest.
Pros
- Funding amounts up to $150k per line. Transparent monthly payment schedule. No fees for subsequent draws.
Cons
- Minimum FICO of 660 required. Max NSF’s is 1 in 6 months. 6% origination fee (based on approve line $ amount).
Funding Amount
Cost
Repayment Terms
Funding Speed
Line of Credit by Rapid Finance
A Line of Credit through Rapid Finance can be a great way to get flexible access to capital right when you need it.
Pros
- Fast approvals for qualified applicants with the initial draw wired as quick as the same day. No competitor payoffs required Minimal documentation required for approval Use as much as you need, only pay fees on what you draw Online customer portal to make draws and access account information
Cons
- Not ideal for startups or low monthly revenue businesses Requires an established business bank account
Funding Amount
Cost
Repayment Terms
Funding Speed
How to qualify and apply
1. Check personal and business credit scores
Most lenders require personal credit scores of 650+ and good business credit scores (if they check business credit), but standards vary by lender. Check your scores first to understand where you stand. If your business has multiple owners with 20% or greater ownership, expect credit checks on each one.
2. Gather bank statements
Be ready to share 3–12 months of business bank statements with the lender. Some may also require financial statements such as profit and loss statements, and/or tax returns. Lenders want to see consistent cash flow and profitability. Some lenders have minimum annual revenue requirements: $100,000 or more in annual revenue, or $10,000 in average monthly revenues, are not unusual requirements.
3. Compare lenders and try to pre-qualify
Research online lenders, banks, and credit unions. Many offer pre-qualification with soft credit checks that won't hurt your scores.
4. Submit full application
Complete applications typically require business formation documents, financial statements, and owner information for anyone with 25%+ ownership.
5. Review offer terms & funding timeline
Compare APRs, fees, credit limits, and repayment terms. Most unsecured lines fund within 1–7 business days after approval.
Does this sound daunting? Nav can help. Save time researching and access your best lending options from Nav’s portfolio of 25+ trusted partners. Apply for funding options with confidence, and get back to doing what you do best: running your business.
Alternatives if you don't qualify
If you can't qualify for an unsecured line of credit, your first goal should be to find out why, as that will determine your next options.
If your personal credit scores are low, you may need to consider financing that doesn’t require good credit.
If you are denied because your business doesn’t have much revenue, you may want to consider a business credit card that lets you qualify based on household income instead of business income.
Here are some options to explore:
- Secured lines of credit let you use business assets like equipment, inventory, or real estate as collateral. This reduces lender risk, which means you may get a better rate than with unsecured options. Your credit limit may be limited by the value of your collateral, though, and your assets are at risk if you default.
- Business credit cards offer similar revolving access to funds with different fee structures. Some even have introductory 0% APR periods that last for a year or longer. and reward programs, but ongoing rates can be higher than lines of credit. Approval requirements may be more flexible for startups, if the owner has good personal credit.
- SBA loans including SBA CAPLines and SBA’s Working Capital Program are government-guaranteed lines of credit with reasonable rates. These loans are made by individual lenders, but the Small Business Administration guarantees a significant portion of the loan, reducing lender risk. However, approval can take 1–2 months, and you'll need strong financials plus a fair amount of documentation. Still these programs can be good options for businesses that qualify.
- Short-term small business loans provide fixed amounts with predictable monthly payments over 3–24 months. While you don't get revolving access, qualification is often easier than lines of credit. Rates typically range from 10%–35% APR depending on your credit profile (though actual rates may vary higher or lower depending on credit profile and lender). This works well if you know exactly how much you need and when you'll repay it.
- Business cash advances use your future sales as collateral rather than physical assets. You are advanced capital in exchange for a percentage of daily credit card sales or monthly revenue. Approval is based more on sales volume than credit scores, making it accessible for businesses with poor credit but strong cash flow.
Frequently asked questions
This article was originally written on September 30, 2025 and updated on October 10, 2025.
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Gerri Detweiler
Education Consultant, Nav
Gerri Detweiler has spent more than 30 years helping people make sense of credit and financing, with a special focus on helping small business owners. As an Education Consultant for Nav, she guides entrepreneurs in building strong business credit and understanding how it can open doors for growth.
Gerri has answered thousands of credit questions online, written or coauthored six books — including Finance Your Own Business: Get on the Financing Fast Track — and has been interviewed in thousands of media stories as a trusted credit expert. Through her widely syndicated articles, webinars for organizations like SCORE and Small Business Development Centers, as well as educational videos, she makes complex financial topics clear and practical, empowering business owners to take control of their credit and grow healthier companies.