Bank lines versus fintech lines
A bank line is the cheap version: prime plus a spread, an annual renewal, financial covenants, and a real underwriting process. A fintech line is the fast version: approval in a day, pricing that can reach the mid-double digits in APR terms, and repayment often on a weekly or daily schedule rather than monthly.
The gap between the two is enormous - sometimes twenty percentage points of APR for the same nominal product. Any comparison that puts them side by side without stating the APR is not a comparison.
The fees that are not the rate
Draw fees, unused-line fees, annual maintenance fees, and monthly minimums are all common and none of them appear in the headline rate. On a line used lightly, fees can exceed interest.
Commonly used for
- Seasonal working capital swings
- Bridging accounts receivable timing
- Businesses that need availability more than they need cash today
What to check before signing
- Fintech lines can carry APRs several times a bank line for the same facility
- Daily or weekly repayment changes the effective cost materially
- Annual renewal means the facility can be reduced or withdrawn when you most need it
- Draw and maintenance fees are frequently omitted from advertised pricing
Line of credit: common questions
- Line of credit or term loan?
- A line matches a recurring, temporary need - you draw, repay, and draw again. A term loan matches a one-time purchase with a long life. Using a line to fund a permanent need is one of the most common and most expensive mistakes in small business finance.
- Does an unused line cost anything?
- Often, yes. Unused-line fees and annual maintenance fees are common. Ask for the fee schedule in writing before signing.