A line of credit is priced on what you draw, not on what you are approved for, which makes it look cheap on the offer sheet and expensive in practice once fees and utilisation are included.
Approximate 2026 cost
About 9 to 25 percent at traditional lenders, 15 to 80 percent online
Revolving facilities, usually reviewed or renewed every twelve months.
Educational estimates only. This page is general information, not financial advice. Cost of Financing does not offer, broker or arrange loans, and we accept no lender sponsorships, referral fees or lead payments.
How a line of credit is priced
Bank lines are usually quoted as prime plus a spread, with interest charged daily on the drawn balance. Add an annual facility fee, sometimes a draw fee, and in some cases an unused line fee charged on the money you did not borrow.
Online lines are often quoted as a weekly or monthly fee on the drawn amount, for example a flat percentage per week for a twelve or twenty four week repayment schedule. Because the balance amortises while the fee is charged on the original draw, the effective APR is far above the headline percentage.
The honest comparison is always cost per dollar actually available for the days you actually hold it. A fee that looks like three percent per month is roughly 36 percent per year before amortisation effects, and considerably more once they are included.
Typical 2026 cost range
Traditional bank and credit union lines run at an approximate 9 to 25 percent effective APR in 2026 once fees are folded in. Online and fintech lines run at roughly 15 to 80 percent, with the top of that band overlapping merchant cash advance territory.
Treat the gap between those two bands as the price of speed and looser underwriting. A bank line can take weeks and needs financial statements. An online line can fund in a day on bank transaction data alone.
What moves you within the range
Revenue stability, deposit history, time in business and personal credit set the band you qualify for. Within a band, the fee structure decides the rest. Unused line fees punish a facility you rarely draw. Draw fees punish frequent short borrowings.
Utilisation pattern matters more than most owners expect. Borrowing for ten days a month at a monthly fee costs three times more per day than holding the same balance for the full month.
When a line of credit makes sense
It fits genuine timing gaps: payroll before a large receipt lands, inventory ahead of a season, a short bridge between contracts. Repaid quickly and drawn rarely, even a mid priced line is cheap in absolute dollars.
It fits poorly as permanent working capital. A line held at full balance for a year is just an expensive term loan without the fixed payoff date.
Before you sign
Ask for the total cost of one full draw held for your realistic repayment period
Check for unused line fees, annual fees and per draw fees
Compare against a term loan if the balance will stay drawn for months
Educational estimates only. This page is general information, not financial advice. Cost of Financing does not offer, broker or arrange loans, and we accept no lender sponsorships, referral fees or lead payments.