Business Line of Credit

Similar to a credit card, a business line of credit is a form of revolving credit that can also give you access to cash.

At a Glance

A business line of credit can give your company quick access to revolving credit. And though you may find business credit cards to be equally convenient, you might see lower interest rates, fewer fees, and more flexible repayment terms with a line of credit.


Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option
Fundbox Logo - Invoice Factoring Company
APR
16%-67%
Estimated Apr
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
No minimum
Get Started
Funding Option
APR
5-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Get Started
Funding Option
APR
13.99%-40%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $100K
Get Started
Funding Option
APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000
Learn More
Funding Option
APR
3.3% - 6.6%
Monthly Interest
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $50,000
Get Started
Funding Option
APR
6-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 3 months
Annual Revenue
No minimum
Get Started

Advantages & Disadvantages

  • Bad credit OK
  • A credit-building tool
  • Only pay interest on funds drawn
  • Convenient access to working capital
  • Appropriate for a variety of business purposes
  • Updated financials frequently required
  • Lender can close line of credit anytime
  • You may be required to provide collateral
  • Poor credit gets you a higher interest rate

What Is A Business Line of Credit?

A business line of credit is a way to finance your small business without having to borrow more money than you need.

It essentially combines a credit card’s access to working capital with the interest rates of a small business loan—

But that doesn’t mean a line of credit is a free ride.

When to Use a Business Line of Credit

A line of credit is often used for short-term financing.

This is true for a number of reasons.

Obviously, the longer it takes you to repay your balance, the more interest you’ll end up paying.

Plus, depending on how much you’ve spent, your remaining line of credit is limited until you pay off what you owe.

There’s also the added pressure of your lender being able to call in what you owe on demand.

Improve Cash Flow

All the same, short-term financing with a line of credit could help you with a variety of cash flow issues, both positive and negative.

According to the Small Business Administration, the three most common reasons an existing business borrows funds is to purchase inventory, expand the company, or strengthen the firm.

Alleviate Growing Pains

Having access to capital can allow you to quickly seize on a profitable business opportunity.

Let’s say, for instance, you sell a line of organic baking mixes.

You sell quite a bit online and are in a few regional specialty stores.

Whole Foods approaches you with a huge wholesale order, but you don’t have the working capital to fill the order with your manufacturer.

A business line of credit could financially tide you over between the time the order is placed and when it’s paid.

Handle Emergencies

A line of credit also helps you finance an emergency.

Remember the previous example of a bakery needing a new commercial oven.

Businesses would be stunted without the right equipment and traditional loans can take weeks to be approved —

Assuming you’re approved at all.

With a line of credit at your disposal, you can quickly take care of emergency expenses without putting your ongoing revenue at risk.

And while you might get similar convenience from a business credit card, you typically see much lower interest rates with a line of credit, as well as fewer fees and more flexible repayment terms.

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option

Fundbox Logo - Invoice Factoring Company

APR
16%-67%
Estimated Apr
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
No minimum
Get Started
Funding Option


APR
5-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Get Started
Funding Option


APR
13.99%-40%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $100K
Get Started
Funding Option


APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000
Learn More
Funding Option


APR
3.3% - 6.6%
Monthly Interest
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $50,000
Get Started
Funding Option


APR
6-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 3 months
Annual Revenue
No minimum
Get Started

Line of Credit for Business

Business Line of Credit
Amount
$10,000 - $1 M
Cost
7 - 25% APR
Terms
6 months - 5 years
Time to Funding
As little as 48 hours
Business Credit Cards
Amount
Up to $50,000
Cost
Intro APR 0% - 24.99%
Terms
Revolving credit, usually paid monthly
Time to Funding
As little as 60 seconds
Business Charge Cards
Amount
No predetermined spending limit
Cost
Annual fee + late payment fees
Terms
Pay balance in full every month
Time to Funding
As little as 7 days

How It Works

Similar to a personal credit card, if approved for a business line of credit, you could receive financing from a lender up to a predesignated amount.

You don’t have to take out the entire amount at once, but can instead just use what you need when you need it.

So you only pay interest on the funds you withdraw while still having access to your remaining balance.

A business line of credit is a type of revolving credit because your available credit goes back up as you pay off your outstanding debt.

Let’s take a look at an example...

Say you own a bakery and you walk in one morning to find that your convection oven has gone on the fritz.

Your repairman confirms that the damage is irreparable and it’s time to replace it.

Luckily, you have a line of credit that goes up to $50,000.

You only want to borrow $15,000 to pay for a new oven so you withdraw those funds and begin making payments.

At that point, your available credit is reduced to $35,000 but once you pay back your outstanding balance, your line of credit goes back to the full $50,000.

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option

Fundbox Logo - Invoice Factoring Company

APR
16%-67%
Estimated Apr
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
No minimum
Get Started
Funding Option


APR
5-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Get Started
Funding Option


APR
13.99%-40%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $100K
Get Started
Funding Option


APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000
Learn More
Funding Option


APR
3.3% - 6.6%
Monthly Interest
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $50,000
Get Started
Funding Option


APR
6-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 3 months
Annual Revenue
No minimum
Get Started

Secured vs. Unsecured

You might receive one of two different types of lines of credit: unsecured or secured.

  • An unsecured line of credit doesn’t require any type of collateral: just your personal guarantee.
  • A secured line of credit, on the other hand, requires you to use some type of property as collateral. In the event you default on your payments, your lender can use your collateral as payment towards whatever you owe.

Since a secured line of credit is less risky for lenders, you may qualify for better rates and repayment terms than you would with an unsecured loan.

At the same time, you should be willing to lose whatever property you use as collateral in case the unforeseen happens and you can’t make your payments.

What's the Total Cost?

The biggest cost involved is interest.

The amount you’ll pay depends on a number of factors, including the strength of your application and the lender you choose. Rates can start as low as 7% and go as high as 60%.

You might also encounter origination fees, draw fees, and maintenance fees depending on the lender.

Advantages

Only Pay Interest on Funds Drawn

The most notable benefit is that you only pay interest on the funds you actually draw from your account, saving you money over time.

This is because you won’t have to go through the process of estimating what a business expense might cost you, then adding in a buffer to your loan request just in case something goes over budget.

With a corporate credit line, you can wait until you actually need to use the money and only take out money when you’re ready to pay for a bill.

You don’t end up paying interest on money you didn’t end up using.

Funds Can Be Available When You Need Them

The next big advantage of getting a business line of credit is timing.

Rather than waiting for an emergency and then applying for a loan, you could have funds readily available.

Plus, you may not need a specific purpose with a line of credit. The funds might simply be used for whatever working capital you need.

This can provide you with a lot of flexibility to help your cash flow and your balance sheet.

Could Build Your Business Credit

Some lenders report your timely payments to the credit bureaus, which builds your positive credit history.

And with payment history accounting for the largest percentage of your credit score, you could quickly start seeing results.

Disadvantages of Business Lines of Credit

While there are a lot of advantages, this type of short-term financing comes with its own set of disadvantages too.

Financial Verification

For one, you may be required to provide your lender with updated financials on your business when you’re ready to draw on your account.

It may be cumbersome, but it reassures your lender that your business is still viable and able to make the repayments.

Offering Up Collateral

As mentioned earlier, you may also be required to provide collateral for a new line of credit.

The kind of collateral accepted varies lender by lender, but typically you can use personal property like a vehicle or boat, a savings account, or sometimes inventory or other assets.

Variable Interest Rate

Small business lines of credit also use a variable rate rather than a fixed rate.

Often it’s calculated as the prime rate plus an additional number of percentage points.

If the prime rate changes, your interest rate correspondingly changes as well.

On Demand Status

Another feature of lines of credit is what’s known as “on demand,” which allows your lender to close your line of credit at will and require your balance to be paid within 30 to 90 business days.

It’s important to use your line of credit strategically so that you’re not overburdening your financial situation.

Higher Interest for Poor Credit

Finally, as with any type of financing solution, you’ll pay more if you have bad credit.

While that can be good news because you actually can get a line of credit for bad credit, you should still realize that your interest rate will undoubtedly be higher compared to someone with a strong credit history.

How To Qualify

Obtaining a line of credit can be an easy process if you’re organized and prepare your information ahead of time, rather than scrambling for documents as your lender requests them.

While you’ll have a better chance of qualifying if you have a more established business and a good credit history, it’s still possible to get a line of credit if your business credit history is less-than-impressive.

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option

Fundbox Logo - Invoice Factoring Company

APR
16%-67%
Estimated Apr
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
No minimum
Get Started
Funding Option


APR
5-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Get Started
Funding Option


APR
13.99%-40%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $100K
Get Started
Funding Option


APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000
Learn More
Funding Option


APR
3.3% - 6.6%
Monthly Interest
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $50,000
Get Started
Funding Option


APR
6-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 3 months
Annual Revenue
No minimum
Get Started

1
Demonstrated Ability to Pay

Business line of credit requirements may include your personal credit score as well as your business’s financials.

The lender might want to review your revenue figures, profit and loss statements, and other documentation demonstrating you the health of your business.

A positive cash flow is a huge indicator of your company’s success, and is sometimes a must for having your application approved.

2
Keep Credit Utilization Low

You’ll also want to make sure your other levels of debt are minimal.

While acceptable debt ratios vary lender by lender, you don’t want to appear overburdened by other financial obligations.

3
Request During Peak Season

Another tip is to request a business credit line before you actually need the cash.

In other words, don’t wait for the middle of your slow season when your numbers look deflated.

Request when your company is at its best so you come across as a responsible applicant who is able to make payments on time as needed.

Don’t wait until you’re cash-strapped and desperate for capital.

Be prepared by having a line of credit at your disposal so that you can meet both challenges and opportunities head-on and come out on the other side stronger than ever.

Connecting with a Lender

Getting the right line of credit is often dependent upon selecting the right lending institution.

When looking around, carefully consider the following:

Amount of Credit

First think about how much money you actually want access to.

If you’re a new business, you can do this by thinking of a worst case scenario, like having to replace your most expensive piece of equipment.

If your company is more established, look back throughout your history and identify the largest expense you’ve ever had.

Either method is a good starting point to figure out how large of a line of credit you should request from a potential lender.

Interest Rate

Comparing interest rate offers is also one of the most important things because that determines how much it will cost you to repay your balance once you actually start using your line of credit.

Don’t assume that just because one lender offers you a certain rate that you can’t get a different rate with another lender.

Learn more about How to Calculate APR vs. Interest Rate on a Loan

Repayment Terms

Also consider what type of repayment terms you’ll receive.

Will you be required to make payments daily, weekly, or monthly?

Or do you want to try to find a lender with an even more flexible repayment schedule?

Look at your cash flow to determine what works best for you.

Do you typically receive revenue on a regular basis throughout the month?

Or does your cash flow come in once every month or two?

Be realistic about your own cash flow so that you can set yourself up for success rather than adding an unnecessary challenge.

Banks Aren’t the Only Place To Get Loans

The type of lender you consider can also impact how your application is handled.

Looking at a wide variety of lenders will ensure a diverse selection of offers.

Learn more about Why Small Businesses Don’t Get Loans From Big Banks

How to Get Started

In order to expedite the process, you should have certain documents ready.

Here’s what you’ll need to get started:

  • Driver's License
  • Voided Business Check
  • Bank Statements
  • Balance Sheet
  • Profit & Loss Statements
  • Credit Score
  • Business Tax Returns
  • Personal Tax Returns

Funding Options APR Do you qualify? Time in Business Annual Revenue
Funding Option
Fundbox Logo - Invoice Factoring Company
APR
16%-67%
Estimated Apr
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 3 years
Annual Revenue
No minimum
Get Started
Funding Option
APR
5-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Get Started
Funding Option
APR
13.99%-40%
Estimated Apr
Do you qualify?
600
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $100K
Get Started
Funding Option
APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000
Learn More
Funding Option
APR
3.3% - 6.6%
Monthly Interest
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $50,000
Get Started
Funding Option
APR
6-50%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 3 months
Annual Revenue
No minimum
Get Started

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Please be aware that missing a payment or making a late payment can negatively impact your credit score. To protect yourself and your credit history, make sure you only accept loan terms that you can afford to repay. If you cannot make a payment on time, you should contact your lenders and lending partners immediately and discuss how to handle late payments.