A business line of credit is a possible option for a small or start-up business to get the capital needed to manage cash flow, fund day-to-day operations and take advantage of new opportunities.
Our picks for the best business lines of credit come with limits ranging from $10,000 to $3 million. The challenge is to find one that meets your needs. Here are six of the best, whether you’re just starting out or are established and looking to grow, and a quick look at how business lines of credit work.
How's your credit? Check My Equifax® and TransUnion® Scores Now
Best for rate discount
Bank of America offers secured and unsecured business credit lines. Both types may come with an interest rate discount of 0.25%, 0.50% or 0.75%, depending on your three-month average combined balances in Bank of America business deposit accounts and/or Merrill Edge® or Merrill Lynch® business investment accounts.
The unsecured lines range from $10,000 to $100,000. And the secured lines start at $25,000, though you may not be required to secure the line of credit if it’s $100,000 or less (more than $100,000 and you’re generally required to secure the line of credit with collateral). Depending on your needs — like your desired credit-line amount and interest rate preferences — one type may be more appealing to you. Both the secured and unsecured business lines of credit are subject to annual renewal.
In order to qualify, your business must have a two-year track record under existing ownership, plus annual sales of at least $100,000 for an unsecured line or $250,000 for a secured line.
Best for a longer repayment term
PNC Bank offers a secured business equity line of credit that gives you seven years of revolving credit during which you’re only required to make payments on the interest you’re charged. After that, you’ll have 10 years to repay the funds that you borrowed. No annual renewal is required to keep your credit line open for the full seven-year period.
The line can be secured by a personal residence or a commercial property that’s owned and occupied by the business. The limit ranges between $10,000 and nearly $1 million.
Best for a higher limit
One of PNC Bank’s other secured credit lines has a limit of $100,001 to $3 million. That’s one of the highest maximums of the credit lines we reviewed, although Bank of America’s secured credit line has no specified maximum.
The line can be secured by non–real estate business assets, such as equipment, as long as the property or items meet a certain value. There will be an annual review to ensure your business still meets the requirements to renew the line of credit for another year.
During the revolving period, you can make automatic payments on interest charges and you can make payments toward the principal at any time.
Best for fixed-rate option
You may see credit lines with a variable interest rate, which means your interest rate can fluctuate based on an index. US Bank’s Cash Flow Manager Line of Credit comes with an option to lock in a fixed rate. The option is available if you have a minimum credit line of $2,000 with a loan term of 1–5 years. Plus each fixed-rate option has a $50 fee.
A few things to note: The bank may limit the number of fixed-rate options you can have at one time. And if your credit line has a Small Business Administration guarantee, you won’t be able to use the option to lock in a fixed rate.
And the credit limit tops out at $250,000.
Best for the rewards program
Wells Fargo offers two unsecured lines of credit, Wells Fargo BusinessLine® and Wells Fargo Small Business Advantage®. Both of these get you access to the Wells Fargo Business Line Rewards Program.
You’ll earn one point for every dollar you spend on net purchases you make with an access card, which lets you make purchases directly from the credit line. You can also earn 1,000 bonus points every billing period if you spend $1,000 or more in net purchases.
Best for start-ups
Sometimes, credit lines require you to have a track record of several years in business with the current owner to qualify. The unsecured Wells Fargo Small Business Advantage® doesn’t, making it a great option for start-ups, though it does have a five-year term, after which it may be reviewed.
The unsecured line ranges from $5,000 to $50,000. And there may be an annual fee, depending on your credit line amount.
A business line of credit allows a business to borrow money, repay it and borrow again, up to the credit limit — similar to a credit card.
Business lines of credit aren’t all alike. Some are offered by banks. Others are offered by nonbank finance companies. Some are secured, which means they may require collateral. Collateral may take the form of business assets, commercial property, personal property (generally your home) or certificates of deposit. Other lines are unsecured, which means no collateral is required.
A line of credit comes with a credit limit, which is the maximum amount that you can borrow from it at any one time. Unlike a credit card, the line can incur interest as soon as you use any portion of the funds. The interest rate you’ll be charged for the amount you borrow is usually lower for a credit line than a credit card.
Before you apply for a business line of credit, research the terms, compare offers and read the fine print. Consider factors such as …
To get a business line of credit, you must apply and be approved by the lender. Whether your company is approved depends on whether it’s deemed creditworthy, and if you have business credit scores, those may be considered. But the requirements will vary by lender.
Credit Karma Guide to Business Credit Scores
If you haven’t had a business line of credit before, a lender may look at individual credit history.
Why separate credit histories?
By having a business credit history separate from your personal one, you can minimize the effect negative events one might have on the other. For example, if you have some financial missteps that impact your personal credit history and score, they shouldn’t impact your small business credit if you have established a clear separation and vice versa.
Why separate businesses and owners?
Unless you’re operating your small business as a sole proprietorship or general partnership, you need to demonstrate that the business is separate from the owners. One of the key benefits that corporations and limited liability companies (LLCs) provide the owners is the protection of their personal assets. Keep this protection in place by consistently showing a clear separation between the owners and the business.
Eight steps to establishing your business credit
Having good business credit can provide a number of benefits, including:
How to Get a Business Line of Credit: 4 Steps
Step 1: Check Your Business's Qualifications
As you can see, there are a variety of reasons why you might decide to get a business line of credit.
With these in mind, let’s start breaking down the process. The first step is checking your business’s qualifications. By knowing where your business stands ahead of time (as in, before you start comparing options and completing applications), you’ll save time and effort throughout the process.
This being said, although there are a variety of business line of credit requirements you might have to meet depending on the lender you’re applying with, there are a few most common qualifications that you can use to evaluate your business’s prospects.
Let’s discuss further.
Personal Credit Score
To start, you’ll want to determine where your personal credit score stands. When applying for a business line of credit, or any financial product for that matter, your personal credit score will very likely be one of the first things a lender looks at.
This being said, some lenders will implement a credit score minimum—meaning you’ll have to have at least that credit score in order to qualify for their business line of credit product.
Overall, your personal credit score will indicate how trustworthy you are as a borrower. Therefore, the higher your personal credit, the more likely you are to qualify for a line of credit, and one with the best rates and terms.
Generally, it’s safe to say if you have a credit score of 600 to 630 (or higher) you’ll be in decent shape to qualify for most business lines of credit. If you’re applying for a bank or SBA line of credit, however, you’ll likely need to have excellent credit, as well as other top qualifications. Most online lenders will be more flexible—with some lenders, like Fundbox, even accommodating a credit score of 500, and others, like Kabbage, with no credit score minimum.
Annual Revenue
Next, you’ll want to take a look at your annual revenue. Like your credit score, most lenders will implement a minimum requirement for annual revenue that a business needs to meet in order to qualify for a line of credit.
A lender will use your annual revenue (as well as other business financials) to ensure that you have enough money coming in to pay back any funds you use from your credit line.
On the whole, just like with your credit score, the higher the amount of annual revenue you have, the better. Again, if you’re looking to get a bank or SBA business line of credit, you’ll generally need to meet a fairly high annual revenue requirement. Alternative lenders, on the other hand, will show greater flexibility, with many lenders setting their minimum annual revenue requirement at anywhere from $25,000 to $100,000 or higher.
Of course, regardless of the small business lender you’re applying with, a higher annual revenue will also give you access to a line of credit with the most desirable terms and lowest interest rates.
Time in Business
When you’re looking to get a business line of credit, you’ll also want to consider your time in business as you evaluate your qualifications.
Generally, a longer time in business means less risk for a lender—your business has been able to maintain ups and downs in operations thus far, and therefore, is more likely to be able to pay back a loan.
This being said, the ideal threshold to meet is two years in business. After two years in business, you’ll be more likely to qualify for the best financing products.
However, compared to traditional business term loans, it’s often easier to qualify for a business line of credit with only a year in business, sometimes even less. For example, online lenders, BlueVine and Fundbox have very flexible time-in-business requirements for their lines of credit: BlueVine requires six months in business and Fundbox only requires three months.
Collateral
Finally, you’ll want to evaluate what kind of collateral you can offer as you think about your business’s line of credit qualifications—especially if you’re a newer business or have bad credit.
In fact, most business lines of credit are secured business lines of credit—meaning they’re backed by some form of collateral. This being said, some lenders will require physical collateral to secure your credit line, such as real estate, equipment, or inventory. On the other hand, some lenders may require that you sign a personal guarantee stating that you’ll use your personal assets to repay the funds you’ve borrowed in the case your business can’t pay.
Additionally, some lenders may take out a lien on your business when you get a line of credit with them—meaning that the lender has a legal claim to recoup your business assets in the case that you can’t repay your debt.
Ultimately, although not all lenders will require collateral, it’s important to consider what collateral you have or are willing to offer. Generally, if you can offer some sort of collateral, you’re more likely to access a business line of credit with better rates or terms. Plus, if you’re a newer business or a business owner with bad credit, putting up collateral may make you more likely to qualify for a credit line.
Step 2: Compare Your Business Line of Credit Options
Once you’ve evaluated your business’s qualifications, you’re ready to start exploring your options.
In this vein, you’ll want to determine what type of revolving line of credit will be best for your business—considering secured vs. unsecured, short-term vs. long-term, and bank vs. online credit lines.
By using the qualifications you established in step one, you’ll be able to narrow down your options to find the right business lines of credit to apply for.
Let’s explain.
Short-Term vs. Long-Term Business Lines of Credit
One of the first things you’ll want to look out for when you compare business lines of credit is whether they’re short-term or long-term.
Generally, a short-term line of credit is a credit line with repayment terms of a year or less, whereas a long-term credit has repayment terms of longer than a year.
Overall, short-term lines of credit (most often offered by online, alternative lenders) will be easier to qualify for, have simpler applications, and will fund faster. However, they will likely also be more expensive, and you’ll need to pay back the funds faster.
If you’re a newer business or business owner with bad credit, you might focus your search on short-term lines of credit, as you’ll be more likely to qualify for these products. You might also turn to a short-term line of credit if you need funding fast. On the other hand, if you have higher qualifications and can accommodate slower funding, you’ll want to focus on longer-term lines of credit.
Longer-term lines of credit, like bank or SBA credit lines (and even some from online lenders), will not only have longer repayment terms, but they will also be more likely to have lower interest rates.
Secured vs. Unsecured Business Lines of Credit
Next, you can narrow down your business line of credit options by deciding whether you want a secured or unsecured line of credit.
As we mentioned above, it’s actually very difficult to find a truly unsecured business line of credit—even if a lender doesn’t require physical collateral, they’ll often require a personal guarantee or implement a blanket lien to secure your credit line.
This being said, if you’re looking to avoid putting up physical collateral, you’ll want to focus on lines of credit from alternative lenders. Lenders like Kabbage and OnDeck won’t require you to put up business assets for your line of credit, but they will likely ask for a personal guarantee or take out a lien on your business.
On the other hand, if you are willing to put up collateral (and have other top qualifications) you may turn to bank or SBA credit lines. These lines of credit will also have the best rates and terms.
With this in mind, it’s also important to consider that putting up collateral for your line of credit may not only make you more likely to qualify, (again, especially if you have bad credit or little time in business) but overall, it may also help you secure more desirable rates and terms.
Bank Lines of Credit vs. Online Lines of Credit
Finally, another important consideration to take as you compare business lines of credit is whether the credit line is issued by a bank or an online lender.
As we’ve mentioned, bank lines of credit (as well as SBA lines of credit) will offer the most desirable rates and terms, but they’ll also be the most difficult to qualify for. Additionally, these credit lines will require more documentation and will be slower to fund. However, if you’re looking for a long-term, secured line of credit and have excellent credit, great business financials, and two or more years in business, a bank line of credit will likely be the best option for you.
On the other hand, there is a much greater variety with lines of credit from online lenders. Within this category, you’ll be able to find business lines of credit for bad credit, startup business lines of credit, and more. Overall, lines of credit from online lenders will be more expensive than those from banks, but they’ll also have simpler application processes and be faster to fund.
This being said, online lines of credit aren’t only well-suited for businesses with less-than-ideal qualifications. In fact, if you have high qualifications but simply don’t want to go through the process of applying for a bank or SBA line of credit, you might turn to a lender like Fundation, who can offer a longer-term credit line with affordable rates, and funding in as little as one business day.
Step 3: Prepare Your Business Line of Credit Requirements
After you’ve narrowed down your options, you’re ready to start preparing your applications.
Let’s say, for example, you considered your business’s qualifications and the different types of credit lines and decided that applying for a Kabbage line of credit and a BlueVine line of credit will be best for your business.
Now, you’ll want to take a look at the application for each of those lenders and determine what requirements you’ll need to meet to qualify.
First, you’ll want to determine what each of these lenders sets for their minimum requirements—personal credit score, annual revenue, and time in business—before you start gathering documents and filling out the application. After all, if you can’t meet these requirements, you don’t want to waste your time applying for a credit line you’re unlikely to qualify for.
This being said, once you’ve made sure you meet these requirements, you’ll want to prepare your application. On the whole, the documents and information that will be required for your business line of credit application will be specific to the lender; however, you may expect to provide any (or all) of the following:
Step 4: Apply and Make a Decision
After you’ve gathered all of the documents necessary based on your lender’s requirements, you’re ready to complete your application and apply.
If you’re applying for a business line of credit from an alternative lender, you’ll likely find that the online application is fairly simple, requires limited documentation, and can be completed in minutes. On the other hand, if you’re looking to get a business line of credit from a bank or from the SBA, you’ll find that you need more documentation and that the process will be longer. Many banks, in fact, will require that you go in-person to apply for a line of credit.
This being said, once you’ve submitted your application, you’ll want to make sure that you’re prompt to answer any questions or requests from your lender—this will help expedite the process and get you access to your funds faster. Generally, online lenders can fund business line of credit applications quickly, sometimes even within one day. As you may have expected, banks will be slower to fund, taking anywhere from a few days to a few weeks.
With this in mind, after you’ve completed the application and answered any requests, the lender will come back with an offer (if you’re approved). At this point, you’ll want to carefully review the offer to understand how your business line of credit will work—and you should compare all of the offers you receive to ensure that you’re getting the best rates and terms. In particular, here are some things to keep an eye out for:
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Our picks for the best business lines of credit come with limits ranging from $10,000 to $3 million. The challenge is to find one that meets your needs. Here are six of the best, whether you’re just starting out or are established and looking to grow, and a quick look at how business lines of credit work.
How's your credit? Check My Equifax® and TransUnion® Scores Now
Best for rate discount
Bank of America offers secured and unsecured business credit lines. Both types may come with an interest rate discount of 0.25%, 0.50% or 0.75%, depending on your three-month average combined balances in Bank of America business deposit accounts and/or Merrill Edge® or Merrill Lynch® business investment accounts.
The unsecured lines range from $10,000 to $100,000. And the secured lines start at $25,000, though you may not be required to secure the line of credit if it’s $100,000 or less (more than $100,000 and you’re generally required to secure the line of credit with collateral). Depending on your needs — like your desired credit-line amount and interest rate preferences — one type may be more appealing to you. Both the secured and unsecured business lines of credit are subject to annual renewal.
In order to qualify, your business must have a two-year track record under existing ownership, plus annual sales of at least $100,000 for an unsecured line or $250,000 for a secured line.
Best for a longer repayment term
PNC Bank offers a secured business equity line of credit that gives you seven years of revolving credit during which you’re only required to make payments on the interest you’re charged. After that, you’ll have 10 years to repay the funds that you borrowed. No annual renewal is required to keep your credit line open for the full seven-year period.
The line can be secured by a personal residence or a commercial property that’s owned and occupied by the business. The limit ranges between $10,000 and nearly $1 million.
Best for a higher limit
One of PNC Bank’s other secured credit lines has a limit of $100,001 to $3 million. That’s one of the highest maximums of the credit lines we reviewed, although Bank of America’s secured credit line has no specified maximum.
The line can be secured by non–real estate business assets, such as equipment, as long as the property or items meet a certain value. There will be an annual review to ensure your business still meets the requirements to renew the line of credit for another year.
During the revolving period, you can make automatic payments on interest charges and you can make payments toward the principal at any time.
Best for fixed-rate option
You may see credit lines with a variable interest rate, which means your interest rate can fluctuate based on an index. US Bank’s Cash Flow Manager Line of Credit comes with an option to lock in a fixed rate. The option is available if you have a minimum credit line of $2,000 with a loan term of 1–5 years. Plus each fixed-rate option has a $50 fee.
A few things to note: The bank may limit the number of fixed-rate options you can have at one time. And if your credit line has a Small Business Administration guarantee, you won’t be able to use the option to lock in a fixed rate.
And the credit limit tops out at $250,000.
Best for the rewards program
Wells Fargo offers two unsecured lines of credit, Wells Fargo BusinessLine® and Wells Fargo Small Business Advantage®. Both of these get you access to the Wells Fargo Business Line Rewards Program.
You’ll earn one point for every dollar you spend on net purchases you make with an access card, which lets you make purchases directly from the credit line. You can also earn 1,000 bonus points every billing period if you spend $1,000 or more in net purchases.
Best for start-ups
Sometimes, credit lines require you to have a track record of several years in business with the current owner to qualify. The unsecured Wells Fargo Small Business Advantage® doesn’t, making it a great option for start-ups, though it does have a five-year term, after which it may be reviewed.
The unsecured line ranges from $5,000 to $50,000. And there may be an annual fee, depending on your credit line amount.
- Credit lines from $5,000 to $9,999: no annual fee
- Credit lines from $10,000 to $25,000: $95 annual fee
- Credit lines from $25,001 to $50,000: $175 annual fee
A business line of credit allows a business to borrow money, repay it and borrow again, up to the credit limit — similar to a credit card.
Business lines of credit aren’t all alike. Some are offered by banks. Others are offered by nonbank finance companies. Some are secured, which means they may require collateral. Collateral may take the form of business assets, commercial property, personal property (generally your home) or certificates of deposit. Other lines are unsecured, which means no collateral is required.
A line of credit comes with a credit limit, which is the maximum amount that you can borrow from it at any one time. Unlike a credit card, the line can incur interest as soon as you use any portion of the funds. The interest rate you’ll be charged for the amount you borrow is usually lower for a credit line than a credit card.
Before you apply for a business line of credit, research the terms, compare offers and read the fine print. Consider factors such as …
- Credit limit
- Interest rate
- Repayment period
- Annual review and renewal
- Requirements to be approved
- Any special perks or rewards
To get a business line of credit, you must apply and be approved by the lender. Whether your company is approved depends on whether it’s deemed creditworthy, and if you have business credit scores, those may be considered. But the requirements will vary by lender.
Credit Karma Guide to Business Credit Scores
If you haven’t had a business line of credit before, a lender may look at individual credit history.
Why separate credit histories?
By having a business credit history separate from your personal one, you can minimize the effect negative events one might have on the other. For example, if you have some financial missteps that impact your personal credit history and score, they shouldn’t impact your small business credit if you have established a clear separation and vice versa.
Why separate businesses and owners?
Unless you’re operating your small business as a sole proprietorship or general partnership, you need to demonstrate that the business is separate from the owners. One of the key benefits that corporations and limited liability companies (LLCs) provide the owners is the protection of their personal assets. Keep this protection in place by consistently showing a clear separation between the owners and the business.
Eight steps to establishing your business credit
- Incorporate your business. Even though you may be incorporated when you’re reading this, it deserves a mention. With sole proprietorships and general partnerships, the business is legally the same as the owner; therefore, there can be no separation of business credit history from personal. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).
- Obtain a federal tax identification number (EIN). The EIN is basically a social security number for a business. It is required on federal tax filings, and is also required to open a business bank account in the name of the corporation or LLC. In order to comply with IRS requirements, many larger businesses also require an EIN from their vendors in order to pay them for services provided.
- Open a business bank account. Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card (see below) for many financial transactions, be sure to pay the credit card bill from your business checking account.
- Establish a business phone number. Whether you use a landline, cell phone or you use VoIP, have a separate number for your business and in your business’ legal name. List that number in the directory so it can be found.
- Open a business credit file. Open a business credit file with all three business reporting agencies: Experian, Equifax and TransUnion.
- Obtain a business credit card(s). Obtain at least one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.
- Establish a line of credit with vendors or suppliers. Work with at least five vendors and/or suppliers to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.
- Pay your bills on time. Perhaps it should go unsaid, but be sure to pay your bills on time. Like with your personal credit, late payments will negatively impact your business credit.
Having good business credit can provide a number of benefits, including:
- Positioning your company for more favorable payment terms with new vendors and suppliers.
- Reducing the number of times you will need to prepay for products or services purchased.
- Allowing you to obtain better interest rates and credit terms from lenders and banks.
How to Get a Business Line of Credit: 4 Steps
Step 1: Check Your Business's Qualifications
As you can see, there are a variety of reasons why you might decide to get a business line of credit.
With these in mind, let’s start breaking down the process. The first step is checking your business’s qualifications. By knowing where your business stands ahead of time (as in, before you start comparing options and completing applications), you’ll save time and effort throughout the process.
This being said, although there are a variety of business line of credit requirements you might have to meet depending on the lender you’re applying with, there are a few most common qualifications that you can use to evaluate your business’s prospects.
Let’s discuss further.
Personal Credit Score
To start, you’ll want to determine where your personal credit score stands. When applying for a business line of credit, or any financial product for that matter, your personal credit score will very likely be one of the first things a lender looks at.
This being said, some lenders will implement a credit score minimum—meaning you’ll have to have at least that credit score in order to qualify for their business line of credit product.
Overall, your personal credit score will indicate how trustworthy you are as a borrower. Therefore, the higher your personal credit, the more likely you are to qualify for a line of credit, and one with the best rates and terms.
Generally, it’s safe to say if you have a credit score of 600 to 630 (or higher) you’ll be in decent shape to qualify for most business lines of credit. If you’re applying for a bank or SBA line of credit, however, you’ll likely need to have excellent credit, as well as other top qualifications. Most online lenders will be more flexible—with some lenders, like Fundbox, even accommodating a credit score of 500, and others, like Kabbage, with no credit score minimum.
Annual Revenue
Next, you’ll want to take a look at your annual revenue. Like your credit score, most lenders will implement a minimum requirement for annual revenue that a business needs to meet in order to qualify for a line of credit.
A lender will use your annual revenue (as well as other business financials) to ensure that you have enough money coming in to pay back any funds you use from your credit line.
On the whole, just like with your credit score, the higher the amount of annual revenue you have, the better. Again, if you’re looking to get a bank or SBA business line of credit, you’ll generally need to meet a fairly high annual revenue requirement. Alternative lenders, on the other hand, will show greater flexibility, with many lenders setting their minimum annual revenue requirement at anywhere from $25,000 to $100,000 or higher.
Of course, regardless of the small business lender you’re applying with, a higher annual revenue will also give you access to a line of credit with the most desirable terms and lowest interest rates.
Time in Business
When you’re looking to get a business line of credit, you’ll also want to consider your time in business as you evaluate your qualifications.
Generally, a longer time in business means less risk for a lender—your business has been able to maintain ups and downs in operations thus far, and therefore, is more likely to be able to pay back a loan.
This being said, the ideal threshold to meet is two years in business. After two years in business, you’ll be more likely to qualify for the best financing products.
However, compared to traditional business term loans, it’s often easier to qualify for a business line of credit with only a year in business, sometimes even less. For example, online lenders, BlueVine and Fundbox have very flexible time-in-business requirements for their lines of credit: BlueVine requires six months in business and Fundbox only requires three months.
Collateral
Finally, you’ll want to evaluate what kind of collateral you can offer as you think about your business’s line of credit qualifications—especially if you’re a newer business or have bad credit.
In fact, most business lines of credit are secured business lines of credit—meaning they’re backed by some form of collateral. This being said, some lenders will require physical collateral to secure your credit line, such as real estate, equipment, or inventory. On the other hand, some lenders may require that you sign a personal guarantee stating that you’ll use your personal assets to repay the funds you’ve borrowed in the case your business can’t pay.
Additionally, some lenders may take out a lien on your business when you get a line of credit with them—meaning that the lender has a legal claim to recoup your business assets in the case that you can’t repay your debt.
Ultimately, although not all lenders will require collateral, it’s important to consider what collateral you have or are willing to offer. Generally, if you can offer some sort of collateral, you’re more likely to access a business line of credit with better rates or terms. Plus, if you’re a newer business or a business owner with bad credit, putting up collateral may make you more likely to qualify for a credit line.
Step 2: Compare Your Business Line of Credit Options
Once you’ve evaluated your business’s qualifications, you’re ready to start exploring your options.
In this vein, you’ll want to determine what type of revolving line of credit will be best for your business—considering secured vs. unsecured, short-term vs. long-term, and bank vs. online credit lines.
By using the qualifications you established in step one, you’ll be able to narrow down your options to find the right business lines of credit to apply for.
Let’s explain.
Short-Term vs. Long-Term Business Lines of Credit
One of the first things you’ll want to look out for when you compare business lines of credit is whether they’re short-term or long-term.
Generally, a short-term line of credit is a credit line with repayment terms of a year or less, whereas a long-term credit has repayment terms of longer than a year.
Overall, short-term lines of credit (most often offered by online, alternative lenders) will be easier to qualify for, have simpler applications, and will fund faster. However, they will likely also be more expensive, and you’ll need to pay back the funds faster.
If you’re a newer business or business owner with bad credit, you might focus your search on short-term lines of credit, as you’ll be more likely to qualify for these products. You might also turn to a short-term line of credit if you need funding fast. On the other hand, if you have higher qualifications and can accommodate slower funding, you’ll want to focus on longer-term lines of credit.
Longer-term lines of credit, like bank or SBA credit lines (and even some from online lenders), will not only have longer repayment terms, but they will also be more likely to have lower interest rates.
Secured vs. Unsecured Business Lines of Credit
Next, you can narrow down your business line of credit options by deciding whether you want a secured or unsecured line of credit.
As we mentioned above, it’s actually very difficult to find a truly unsecured business line of credit—even if a lender doesn’t require physical collateral, they’ll often require a personal guarantee or implement a blanket lien to secure your credit line.
This being said, if you’re looking to avoid putting up physical collateral, you’ll want to focus on lines of credit from alternative lenders. Lenders like Kabbage and OnDeck won’t require you to put up business assets for your line of credit, but they will likely ask for a personal guarantee or take out a lien on your business.
On the other hand, if you are willing to put up collateral (and have other top qualifications) you may turn to bank or SBA credit lines. These lines of credit will also have the best rates and terms.
With this in mind, it’s also important to consider that putting up collateral for your line of credit may not only make you more likely to qualify, (again, especially if you have bad credit or little time in business) but overall, it may also help you secure more desirable rates and terms.
Bank Lines of Credit vs. Online Lines of Credit
Finally, another important consideration to take as you compare business lines of credit is whether the credit line is issued by a bank or an online lender.
As we’ve mentioned, bank lines of credit (as well as SBA lines of credit) will offer the most desirable rates and terms, but they’ll also be the most difficult to qualify for. Additionally, these credit lines will require more documentation and will be slower to fund. However, if you’re looking for a long-term, secured line of credit and have excellent credit, great business financials, and two or more years in business, a bank line of credit will likely be the best option for you.
On the other hand, there is a much greater variety with lines of credit from online lenders. Within this category, you’ll be able to find business lines of credit for bad credit, startup business lines of credit, and more. Overall, lines of credit from online lenders will be more expensive than those from banks, but they’ll also have simpler application processes and be faster to fund.
This being said, online lines of credit aren’t only well-suited for businesses with less-than-ideal qualifications. In fact, if you have high qualifications but simply don’t want to go through the process of applying for a bank or SBA line of credit, you might turn to a lender like Fundation, who can offer a longer-term credit line with affordable rates, and funding in as little as one business day.
Step 3: Prepare Your Business Line of Credit Requirements
After you’ve narrowed down your options, you’re ready to start preparing your applications.
Let’s say, for example, you considered your business’s qualifications and the different types of credit lines and decided that applying for a Kabbage line of credit and a BlueVine line of credit will be best for your business.
Now, you’ll want to take a look at the application for each of those lenders and determine what requirements you’ll need to meet to qualify.
First, you’ll want to determine what each of these lenders sets for their minimum requirements—personal credit score, annual revenue, and time in business—before you start gathering documents and filling out the application. After all, if you can’t meet these requirements, you don’t want to waste your time applying for a credit line you’re unlikely to qualify for.
This being said, once you’ve made sure you meet these requirements, you’ll want to prepare your application. On the whole, the documents and information that will be required for your business line of credit application will be specific to the lender; however, you may expect to provide any (or all) of the following:
- Basic personal information including your name, social security number, and ID
- Basic business information including business name, entity type, tax ID number, and industry
- Personal and business credit score
- Personal and business tax returns
- Business financial information including annual revenue, bank statements, balance sheets, profit and loss statements, etc.
- Debt schedule (if you have existing debt)
- Legal contracts and agreements
Step 4: Apply and Make a Decision
After you’ve gathered all of the documents necessary based on your lender’s requirements, you’re ready to complete your application and apply.
If you’re applying for a business line of credit from an alternative lender, you’ll likely find that the online application is fairly simple, requires limited documentation, and can be completed in minutes. On the other hand, if you’re looking to get a business line of credit from a bank or from the SBA, you’ll find that you need more documentation and that the process will be longer. Many banks, in fact, will require that you go in-person to apply for a line of credit.
This being said, once you’ve submitted your application, you’ll want to make sure that you’re prompt to answer any questions or requests from your lender—this will help expedite the process and get you access to your funds faster. Generally, online lenders can fund business line of credit applications quickly, sometimes even within one day. As you may have expected, banks will be slower to fund, taking anywhere from a few days to a few weeks.
With this in mind, after you’ve completed the application and answered any requests, the lender will come back with an offer (if you’re approved). At this point, you’ll want to carefully review the offer to understand how your business line of credit will work—and you should compare all of the offers you receive to ensure that you’re getting the best rates and terms. In particular, here are some things to keep an eye out for:
- Terms and amount: You’ll want to review all business line of credit applications to see the credit line you’ve qualified for—in other words, the maximum amount of your line of credit, as well as the terms. The terms will indicate how long you’ll have to repay the funds you’ve borrowed.
- Payment schedule: Lenders will have different payment schedules that designate how often you’ll make payments on the funds you borrow—some will require daily payments, whereas others may offer weekly or monthly payments. You’ll want to see what kind of payment schedule your business line of credit offer includes.
- Interest rate: As you might imagine, the rate on your line of credit will be one of the most important things to review. This being said, you’ll want to look for the APR on your credit line, as opposed to the simple interest rate. The APR will give you a better sense of how much your line of credit will actually cost.
- Additional fees: You may find a variety of additional fees that a lender can charge with a business line of credit. In particular, you’ll want to look out for withdrawal fees (charged every time you draw on the credit line), non-use fees (charged if you don’t draw on your credit line for a certain period of time), and prepayment penalty fees (charged if you pay off your balance early).
Best Business Lines of Credit
A business line of credit allows you to borrow up to a certain limit and only pay interest on the money you borrow — similar to the way a credit card works.
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