How to Get a Business Line of Credit in 4 Steps

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How to Get a Business Line of Credit: What You Need to Know

A business line of credit is one of the most flexible forms of financing for small businesses. You can use a business line of credit for working capital, to cover cash flow issues, or to fund an emergency or unexpected opportunity. Plus, compared to some other forms of financing, like traditional business loans, a business line of credit can be more accessible for startups or business owners with bad credit.

So, if you’ve decided that a credit line is the right financing solution for your business, you may now be wondering how to get a business line of credit.

Luckily, we’re to help.

In this guide, we’ll break down the four simple steps you can follow to learn how to get a line of credit for your business.

Let’s get started.

How to Get a Business Line of Credit: A Quick Guide

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Why Should You Get a Business Line of Credit?

Let’s start this guide by answering a simple question: Why should you get a business line of credit?

If you’ve already decided that a credit line is the best option for your business, you may already know the answer—however, even if you end up determining that a term loan or SBA loan will be a better fit for you now, it’s worth considering the benefits of a business line of credit—in the case you opt to get one in conjunction with other financing, or if you think about getting one at any time in the future.

So, why would you get a business line of credit?

First, a business line of credit is one of the most flexible financing solutions. A business line of credit can be used to fund virtually any business purpose and is particularly useful for smaller, immediate needs. Additionally, because of the way a line of credit works, you don’t have to worry about a consistent debt payment—instead, you only make payments when you draw on the credit line, you only have to pay back the amount you draw, and you only pay interest on that amount.

This, of course, stands in contrast with a traditional term loan, in which you receive a lump sum and have to continuously pay off that entire amount, with interest. Moreover, a business line of credit is a great solution to keep in your back pocket in case you need it. You can open a business line of credit with very little cost and only use it when you need it. For example, if you needed to fund an unexpected repair on a piece of equipment, you could draw on your business line of credit instead of having to search for an emergency business loan, which would likely end up being time-consuming and expensive.

Plus, like a business credit card, you can use your line of credit to build and improve your business’s credit history, which is especially useful if you’re a newer business. Finally, although some lenders see lines of credit as riskier endeavors due to their revolving nature, many lenders (especially online, alternative ones) make business lines of credit accessible to startups and business owners with bad credit—giving them a financing solution when they normally don’t have many options.

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 (like Chase), 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 much your business line of credit will cost—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).

    Once you’ve reviewed the offers, asked your lender any questions, and decided on the best business line of credit for you, you’ll be all set to sign the agreement and receive your funds.

Frequently Asked Questions

The Bottom Line

Now that we’ve reached the conclusion of our guide, you should have a better understanding of how to get a business line of credit.

Ultimately, once you’ve decided to focus your financing search specifically on business lines of credit, you’ve already tackled a huge part of the process.

This being said then, getting a business line of credit comes down to evaluating your qualifications, finding the right line of credit for your business, gathering your documents, and actually applying. Once you’ve completed all of these steps, you’ll have access to one of the most flexible and useful financial products on the market.

Plus, after you’ve gone through this process once, it will only be easier the next time you decide to apply for any type of business financing.

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Vice President and Founding Editor at Fundera

Meredith Wood

Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
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