How To Get A Business Line Of Credit

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Business Line of Credit

Best Business Lines Of Credit In May, 2024

One of the biggest challenges in business is maintaining a steady cash flow. You’ll have times where you have plenty of it and times when you’re waiting for that next big sale or your big clients to finally pay their invoices. This can make it difficult to plan ahead, grow your business, and pay for essential expenses. One of the best ways to manage this fluctuation is with a business line of credit.

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What is a business line of credit?

A business line of credit is a little like a credit card – you’re given access to a maximum amount of credit and you can use that money and pay it back whenever you need it.

That said, there are also non-revolving business lines of credit, which are more like a personal loan. You can borrow the money once, but once you’ve used up your available line of credit, you cannot use it again.

How does a business line of credit work?

A business line of credit is a pool of money you can pull from when you need it. For example, if you had a line of credit for $20,000 and you needed a little extra to cover payroll as you waited for one of your clients to pay you, you could use $5,000 of it without needing to ask anyone for permission.

Then, when your client paid, you could pay back that $5,000 and you would again have $20,000 of credit you could use if needed. (Unless it is non-revolving, in which case you would have $15,000 remaining to use.)

What are the benefits of a business line of credit?

Business lines of credit are one of the most flexible forms of credit available, and their biggest benefit is that they make it possible to borrow any sum of money (small or large) over almost any term. In our example above, you only needed $5,000 for a week or so and then paid it back in full, but you can also borrow and then pay it back over a much longer period.

Of course, interest applies when you’ve borrowed money, so it’s within your best interest to pay it back quickly to avoid fees and free up that money to use again in the future. When used properly, a business line of credit can ease the ebb and flow of revenue in a business (especially those that do larger deals or have customers that pay on net 30, 60, or 90 day periods).

Compare line of credit lenders

BlueVine

BlueVine

Funding: Borrow $5,000 - $250,000
Minimum Credit Score: 600
Loan term: 6-12 months
Funding turnaround: 24-48 hours

With BlueVine, borrowers can get approval as fast as 24 hours and obtain a business line of credit for short term capital needs while only paying interest on the funds you borrow.

PNC Bank

PNC Bank

Funding: Borrow up to $100,000
Minimum Credit Score: 720
Best For: Bank business line of credit & loans
Funding turnaround: as fast as same business day

With PNC Bank, borrowers can obtain a line of credit with impressive interest rates and get funded as fast as same business day. Best for borrowers with high credit scores who can provide a personal guarantee.

FundBox Business Loans

Fundbox

Funding: Borrow $2,500 - $150,000
Minimum Credit Score: 600
Loan term: 12-24 months
Funding turnaround: as fast as next business day

Fundbox requires minimal documentation and access to a revolving line of credit without origination or maintenance fees. Borrowers are not required to have collateral (with exception of larger credit lines which are subject to a personal guarantee).

What are the pros and cons of business lines of credit?

PROS

  • They can help even out cash flow, ensuring you are never too cash-poor to continue your business activities
  • You only borrow what you need, so you don’t have to borrow a lump sum like a term loan
  • You don’t have to ask for permission, which means you can seize opportunities when you see them
  • You can build a good long-term relationship with the lender, which can prove useful in the future

CONS

  • They often come with high-interest rates, which makes borrowing more expensive
  • Most come with additional fees (such as an account fee)
  • You can make mistakes easily and fall into a problem, especially if a client falls into financial trouble or you need to take legal action
  • You need to be wary when choosing a lender, as there is a history of some line of credit providers having predatory policy details – always read the small print, especially if they aren’t a well-known lender
  • Accessing it in the first place can be time-consuming
  • You generally need to be well established

Business line of credit payment calculator

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What type of expenses can I use a business line of credit for?

Generally, there aren’t any rules about what you can and can’t use a business line of credit for, beyond illegal activities and using them for non-business purposes. You need to read the fine print of your agreement to check what your limits are before you agree to your line of credit.

Secured vs unsecured business line of credit

It’s relatively unusual to find a secured business line of credit, but it is possible. A secured business line of credit allows you to secure the line of credit against your property, such as an expensive piece of equipment, a property, or similar. These can be a good idea if you would otherwise struggle to secure funding, but you need to be careful. The nature of a business line of credit makes it more likely that you’ll get into financial difficulty, so don’t secure the loan against anything you couldn’t afford to lose.

An unsecured business line of credit is given to you on the promise that you’ll pay it back, so it often comes with higher fees. That said, if you do get into financial difficulty, the lender won’t be able to seize your property to recoup their losses.

Business line of credit vs business credit cards

A business line of credit and a business credit card are very similar, the main difference is in the way the money can be used. In most cases, a business line of credit is linked to a business bank account, and you can move funds into your bank account directly.

A business credit card may allow you to do that (called a cash advance), but it generally comes with high fees, so it’s best to use the credit card to pay for things directly.

Does a business line of credit show up on a credit report?

It should show up on your business credit score, yes. Be wary of any lender that tells you it won’t. If you need to borrow money based on your income only, look into a merchant cash advance.

Is it possible to increase the business line of credit if I need to?

In some cases, yes. If you have been with your lender for a while and proven yourself to be a reliable borrower, they’ll likely consider increasing your line of credit. You’ll need to request an increase through them and provide them with any additional information they need. If you can put up something for collateral, you’ll have an even easier time.

How do interest payments work on a line of credit?

This can vary from lender to lender, so make sure you understand how you will be charged before you accept the terms of a line of credit. In most cases, however, you are only charged interest on the money you’ve borrowed. Generally, this interest plus the money you’ve borrowed requires a monthly payment (like a credit card) though some may require payments more often.

How to qualify for a business line of credit

To qualify for a business line of credit, you generally need:

  • To have been in business for more than six months (2+ years is best)
  • Have more than $25,000 in annual revenue
  • A personal credit score of 500 or more

For some, you’ll also need something to put up as collateral.

Apply for a business line of credit

Once you’ve decided a business line of credit is the right funding option for you, it’s time to start comparing your options. Look for those with the lowest interest rates and the best terms. Once you’re ready to apply, make sure you have all the documentation you need, such as your personal and business tax returns, bank statements, profit and loss sheet, and similar. You can usually save an application once you’ve started, so if you need to pause to get another document, you will be able to.

Once you’re approved, your line of credit will usually be available to you in a matter of days.

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