How to Get a Business Line of Credit in 4 Steps

A step-by-step guide to applying and closing a line of credit.
Editor's note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

How to Get a Business Line of Credit

Getting a business line of credit can be easy or hard depending on the type of line of credit you’re looking for and what your qualifications are as a borrower.

As for how to get a business line of credit, the process can be easy or hard. Luckily, there are four straightforward steps to getting a business line of credit that can help you submit your most funding-worthy application possible:

  1. Check your credit score. Your credit score will play a large role in the type of business line of credit you can get. A strong credit score will open up more options for you.
  2. Compare options from different lenders. Once you know what kind of business line of credit you qualify for, compare the amounts and rates with different lenders.
  3. Get your documents together. Some lenders will require a lot of documents in the application process, and some will have a quick and easy process.
  4. Apply online. Except for traditional banks, most business line of credit lenders will have online applications to quickly upload your documents.

We’ll cover these steps to how to get a business line of credit in more detail, so read on to get all the information you need to get these small business loans.

Apply Now

Why You Should Have a Business Line of Credit

As a business owner, you have dozens of financing options available to you. Navigating this world can be a time-consuming and confusing process, but to keep it simple, there is something all business owners need to know—having a business line of credit is a must.

Why?

A business line of credit creates a cushion for your business in case of any unexpected cash flow issues. It keeps you from searching for financing in a hurry, causing you to pay more for financing than you’d like or should, because you’re in need of funds fast. After all, fast cash is expensive cash, and if you find yourself in a bind, the only options that can fund in under a week are going to have very high APRs.

With a business line of credit, you only pay for what you use, so you can keep a line open with a bank or online lender at no or minimal cost to you.

Think about it: what happens if you have a late paying customer and you can’t make payroll? What it happens if you have a large order come in from a supplier and you need extra inventory to fill it? You don’t want to your employees to suffer because of a customer’s mistake, and you don’t want to miss out on an opportunity to grow your business.

A business line of credit serves as financing when you need it most. It allows you to plan for the unplanned, and helps you tackle any unforeseen cash flow issues your business might face.

Knowing how important a business line of credit is for your business, let’s talk about how to get one for your business today.

How to Apply and Get a Business Line of Credit

As we’ve mentioned, there are a few different types of lines of credit available to small business owners.

And when you’re wondering how to get a business line of credit, the answer will differ based on the line of credit you’re getting.

We dive into more details on the different types of lines of credit below. But let’s look at the application process for the two general products: Longer-term, lower-rate lines of credit, and more accessible, but more expensive lines of credit.

How to Get a Long-Term Business Line of Credit

Want a business line of credit from a traditional bank? Or maybe you might qualify for larger and longer-term line of credit from an online provider, like Lending Club or Fundation.

Here are the general steps for how to get these business lines of credit:

  1. Check your credit score. These business lines of credit are really only available to borrowers with strong personal credit, say 680+. Any borrowers below this threshold should consider getting a business line of credit from a different online lender.
  2. Get your financial documents in order. Applying to these larger, less expensive business lines of credit will mean that you’ll need to provide more documentation and information in the application process. Be prepared to give your basic business information along with your personal and business tax returns, bank statements, profit & loss statements, balance sheet, etc.
  3. Apply online. Online lenders have online applications that make the actual application process pretty seamless. Banks on the other hand might not allow business owners to apply online, instead requiring them to visit branch locations.
  4. Be patient. When it comes to getting these business lines of credit, you’ll have to be patient—especially if you’re working with a bank. If you’re getting larger amounts of low-rate capital, the lender will take some time vetting you to make sure you’ll be a reliable borrower.

How to Get a Short-Term Business Line of Credit

The other type of business line of credit out there is a line of credit that’s very accessible and very fast to get, but generally more expensive.

The accessible nature of these financing products make them good options for less-established business owners with lower credit scores. Just be aware you might be getting a much higher APR you could find with a bank.

You’ll also likely be getting much less money than if you were getting the business lines of credit described above. However, you can start small with a more expensive line of credit and graduate to a better line of credit product once you’ve established your business and your credit profile a little more.

So, how do you get these business lines of credit? Well, the process is the same really besides a few notable differences.

First, you’ll likely only need to provide a few pieces of information to be approved, namely your bank statements, credit score, and basic business information.

Secondly, you don’t have to be as patient through this process. Why? Well, that’s because getting a business line of credit from an online lender like Kabbage is so fast. You’ll likely receive your funds in less than a week.

How Business Lines of Credit Works

A business line of credit is when a financing institution extends you a “line of credit” that you can draw on anytime you need funds for your business.

So, let’s say they extend you a $25,000 line of credit. This means you can take out $25,o00, $10,000, or whatever sum you want under or up to $25,000 at that time. Or, you can wait and take out the funds later when you need them. Depending on what you take out (let’s say you decided on $10,000), you’ll only have to pay back (and pay interest) and what you’ve taken out. At anytime, you can only have up to $25,000 outstanding, but you can pull out different increments such as another $5,000 or $10,000 after that original $10,000.

As you can see, it operates very similar to a credit card, with some differences that we’ll explore in a bit.

A business line of credit is often seen as riskier by financial institutions as it’s usually for an undefined period of time, whereas a term loan is a lump sum of money with a due date.

Depending on the lender, business lines of credit will be of different lengths, amounts, price and have different collateral requirements.

Let’s figure out how.


Different Types of Business Lines of Credit

10 years ago if you need a line of credit there was only one option: the bank. And while the bank still remains a top option, there are a few other kinds of lines of credit you should explore.

Bank Business Lines of Credit

Banks offer some of the most affordable lines of credit available to businesses. If your bank has offered you a line of credit, you should absolutely take it. It will be hard to find a better price, even if it’s not the amount you desired.

That being said, qualifying for a bank line of credit can be very difficult. Banks have tightened their overall lending to small businesses, and it is harder than ever to qualify for any type of bank funding.

Your best bet is to start with a bank you have a relationship with. They’ll know you and your financial habits better than other financial institutions, and if you’ve been a good customer, that will work in your benefit.

If you do not have a strong relationship with a bank, considering going to a community bank. Community banks are more small business-friendly than larger banks, so you’ll have a better chance of getting approved.

And if you aren’t? Don’t worry. You’ve still got options.

Online Lender Business Lines of Credit

Like we said, years ago, if you wanted a line of credit and couldn’t get one at your bank, you were out of options. Nowadays, there are many online lenders offering lines of credit to small business owners.

Online lenders’ lines of credit operate quite similarly to the banks. The biggest difference is going to be the price.

As online lenders are able to offer lines of credit to younger businesses with less revenue or credit than the bank, they are assuming more risk. To balance out that risk, their pricing must be higher. So while a line of credit from an online lender is an excellent option, you must know that if you withdraw funds you will pay more than at the bank.

That being said, another pro of an online lender is that, beyond looser business line of credit requirements, they can also qualify you very quickly. Many of these lenders can qualify you in 24 hours and if you need the funds immediately, get them to you in that same time as well.

A few of our favorite and most reputable online lenders that offer lines of credit are Kabbage and BlueVine. If you’re considering this option, be sure to shop around to make sure you’re getting the best price.

Asset-Backed Business Lines of Credit

Another line of credit option—and one that works quite well if you need a lot of money—is an asset-backed line of credit.

Simply put, this is where one of your business assets collateralizes the line of credit. This could be a piece (or pieces) of equipment, inventory, outstanding invoices, or more.

These lines of credit can get complicated. For example, if it is outstanding invoices that are collateralizing the line of credit, it could be that the amount of the line changes based on the total amount of outstanding invoices you have. Or, if it is a piece of equipment, it might mean that the equipment has to be assessed and audited first to really define the value (and also consider things like depreciation).

While there are more hoops to jump through with asset-backed lines of credit, it can be a great way to qualify for a larger line, even you have not-so-hot credit.

One of our favorite lenders to consider for this type of line of credit is the Credit Junction.


Business Line of Credit vs. Business Credit Card

When it comes to knowing how to get a business line of credit, one of the first questions you’ll probably ask is: What’s the difference between a line of credit vs a credit card?

The easiest answer is that a business credit card is, in fact, a type of line of credit. And, operating on our philosophy of “every business owner should have a business line of credit”, we actually believe every business owner should have both a traditional line of credit and a business credit card.

Why?

Because, although a business credit card is a type of line of credit, there are many things a business credit can do that a line of credit can’t, and vice versa.

So, what can they both do?

  • Build your credit. Utilizing both a business credit card and a line of credit will help you build both your personal and business credit.

  • Finance your business. In both circumstances, you have access to a type of financing that you can utilize to grow your business that you must pay back (with fees).

Paper sheet
What makes a traditional line of credit unique?

  • Access to cash. A line of credit stands out from a credit card as you access cash directly when using a line of credit. While you can technically get a cash advance on some credit cards, you’re going to pay an arm and leg to do that. As a business, there are going to be some scenarios where you need cash, and a line of credit is a much more affordable way to access to it.

  •  Larger lines. Generally speaking, lines of credit are for larger sums than credit cards. As you’re trying to build a cushion for your business that can help you out in an emergency, you’ll want access to as much credit as possible.

Paper sheet
What makes a business credit card unique?

  • Rewards. Just as with personal credit card, there are many business credit cards that reward you for your spend. The way we see it as that you’re already spending money for your business, so why not earn a little for doing it? Depending on the card, you could get cash back on every dollar you spend or earn points for travel. You’re essentially losing money if you’re not putting everyday spend on a business credit card. Doing so could pay for your next vacation!

  •  Intro Offers. A special type of reward many business credit cards offer is an introductory perk for signing up. Our favorite type of intro reward is a 0% intro APR period. With a 0% APR period, it’s like you have access to an interest-free loan for a set period of months. It’s a great way to finance your business without paying a dime to do so. Of course, you’ll want to have a plan in place for how you’ll pay your balance back before the intro period is up!

As you can see, while a business credit card and business line of credit are quite similar, they both have elements that make them unique. There is a reason your business should have access to both. If you don’t have a business line of credit and a business credit card today, make sure to put a plan in place to secure both these financing options soon.


How to Get the Business Line of Credit That’s Best for Your Business

Now that you know the different types of business lines of credit, you’ve got to decide how to find the right line of credit for you.

Starting with a business credit card—do you already have one? If so, that’s excellent. But like we said above, this is a line of credit that can really work hard for your business. You want to make sure you’re using the absolute best card for your business. If you’re not certain, don’t be afraid to shop around.

Also, remember you can have multiple credit cards. You’ll want to be cautious and responsible here, but based on the rewards a card offers, you might divide your spend to make sure you’re earning the most.

Once you have a trusty credit card in your wallet, it is time to turn your sites to a traditional line of credit.

Remember: the bank will have the lowest cost option, so if you think you may be able to qualify for a bank line of credit (this would mean you have strong personal credit, business credit, revenue, profitability, and have been in business for a few years), then you should give it a shot. This process can and most likely will take a few months.

Now, if you know you don’t stand a chance with the bank, you’ve been turned down, or you need a line of credit quickly, you should consider the online lenders mentioned above. While their lines of credit are pricier, you’ll have access to the funds quickly and they’ll be there for you whenever you have a cash flow emergency.

But if you aren’t in a rush, and you feel your business has assets it could use as collateral (the most popular options are invoices and inventory), consider an asset-backed line of credit. Like we said, this can get you access to a large sum, but this process will take quite some time. If you don’t need access to a large sum, then there is no need to go through all the trouble.

You’ve got lots of options, and if the first one or two don’t work out, keep trying. However, if you find that you keep getting denied based on credit, you might have to take a different course of action.

How to Get the Business Line of Credit With Bad Credit

If you’ve tried all the options above and are finding you are getting told no because of your credit score, you’re in tough spot. It is much harder to qualify for a line of credit if you have challenged credit.

But you do still have options and the nice thing is that these options can help build your credit, opening up more and better lines of credit down the road.

If you’ve got bad credit, your best options for a line of credit will be a business credit card.

You might be thinking—I’ve applied for a credit card, too, and have been denied. But, there are some great credit card options even if you have challenged credit.

While having a challenged credit score will limit your line of credit options, try the options above and keep working on building that score. You’ll find both your personal and business credit score utilized multiple times throughout the course of your business’s history, and you don’t want to limit your business growth because of them.

P.S. – Here’s an awesome guide on improving your personal credit score that we highly recommend.

Good luck!

You’ve got everything you’ve need to figure out how to get a business line of credit. If you still aren’t sure if a business line of credit is the right type of financing for you, feel free to check out our other financing guides.

When it comes to any type of financing for your business, you want to proceed with caution and do as much research as possible. You’ve already taken the first step, which is great!

If you have any more questions on a business line of credit, explore our detailed review of the product here.

If not, good luck finding the perfect line of credit!

Get Started Now