How to Get a Business Line of Credit

How to Get a Business Line of Credit [Best Places and Best Rates 2021]

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How to Get a Business Line of Credit

Although a business line of credit is a loan option, it is one of the major factors that contribute to the growth of many small businesses. In addition to increasing credit scores and protecting against unexpected events, experts strongly recommend it for entrepreneurs regardless of whether their various businesses are gaining or losing money. However, selecting the right business line of credit is a subject in and of itself, and one of the factors that makes this decision difficult is the large market of creditors available. Let’s take an in-depth look at business lines of credit, so you can see how they can help a business like yours. 

What Is A Business Line of Credit?

A business line of credit, also known as a “LOC,” is a flexible loan option that provides users with access to a set amount of cash to help a business manage its day-to-day operations. This line of credit serves the same purpose as a credit card, but it is not intended for personal use because it is specifically designed to meet the needs of small businesses.

Its operating principle is that it provides customers in need of funds with a loan amount that has a certain threshold value that cannot be exceeded. Additionally, the person who holds the line of credit only pays interest on the amount borrowed rather than the total available amount. These interest rates differ and are broadly classified as variable or fixed. The latter provides more precise, concise, and vivid expectations that do not change over time.

Meanwhile, variable interest rate lines of credit often start with a low introductory rate, but they can fluctuate substantially over the life of the line of credit. This makes variable rate lines of interst attractive at first, but unpredictable over the long term, and borrowers will have an equal chance of paying high or low interest rates over the life of the loan. 

Other things to note about a business line of credit is that there are usually certain fees involved in the process and this depends on the credit line used. Some of these charges are maintenance fees (which may be charged either on a monthly or yearly basis), draw fees, and origination fees.

Looking for fast and flexible business credit? Check out Divvy.

The Advantages of Having a Business Line of Credit

While the advantages of having access to a business line of credit are numerous, here are a few most important reasons you should have one for your business:

1. Provision of Revolving Loans

A business line of credit provides its users with revolving loans that are flexible. These loans have relaxed interest rates that are either fixed or variable rates and which are arguably the best in the market. As a result, a line of credit is an excellent cash flow solution for small businesses.

2. Better Taxation System

One of the primary benefits of a business credit line is that it offers lower taxation when compared to other options. Few credit lines can boast of having the “write off” feature, which is an added bonus. Taxes are low and easy to repay over the agreed-upon time period for business owners.

3. Suitable For Unexpected Growth Or Expansion 

Business opportunities abound, and some may present themselves at any time. It is best to have a business line of credit when such a situation arises, so you can take advantage of a fleeting opportunity. This will help the business regardless of whether or not there is cash flow. Furthermore, this line of credit is a better source of obtaining working capital funds, which is one of the underlying challenges that most business owners face.

Borrowing Limits

Although a business line of credit provides funds to business owners, the amount that can be borrowed is limited. The maximum credit available from online lenders is $250,000, while the minimum credit available varies depending on the terms and conditions. They typically provide short-term credit with terms ranging from six to twenty-four months (6 – 24 months).

A business line of credit, on the other hand, typically provides a minimum of $1,000 and a maximum of $250,000. Experts advise against using a business credit line with a high credit limit rather than one with a low credit limit. This is due to the fact that credit lines with high credit limits are more secured and do necessitate collateral.

How To Get A Line Of Credit For Business

How to Get a Business Line of Credit 

Certain financial credentials can be used to obtain a business line of credit. This must meet the requirements of your preferred business credit line. The following are some methods for obtaining a business line of credit:

Application: To obtain a business line of credit, one must first submit an application. This can be accomplished through the following organizations:

  • Online credit lenders
  • Bank
  • Business credit providing broker
  • Credit Union

Evaluation: After you submit your application, the credit service provider will access it and determine whether or not you are eligible for a business credit line. At this point, the following factors are being considered:

  • Business Service Year: This is the amount of time a company has been in operation. To be on the safe side, your company should be at least two years old in order to be approved. Nonetheless, some business creditors make concessions and may still make you an offer despite the fact that your company has been in operation for a shorter period of time.
  • Credit Scores: A good personal and business credit score improves one’s chances of getting a business line of credit. Most business creditors require a minimum credit score of 600 to 700. Nonetheless, banks require higher credit scores than other credit providers, which can range from 500 to 850 depending on the type.
  • Revenues: To be eligible for credit lines, business owners must generate substantial revenues. These revenues must be properly verified and confirmed, for example, through income and/or bank statements, tax returns, and so on.

Important Notes:

To be approved for a business line of credit, one must form a partnership with a Limited Liability Company (LLC), S-corporation or S subchapter, C-corporation, and so on. Another thing to keep in mind is that those who have a business bank account have a better chance of getting approved than those who do not. As a result, it is recommended that you open one before applying for a business line of credit.

When a Business Line of Credit is a Good Idea

While obtaining a business line of credit is a good idea, knowing when to do so is critical. This will put you in the best financial position and ensure that you reap the most benefits. When is the best time to apply for a business line of credit?

  • When the business is generating a good sum of revenues
  • When there is a healthy cash flow in the business
  • When the business is experiencing a low sales volume
  • When an important customer has not paid for a provided goods or services in due time; which may affect your ability to pay your own bills in the long run
  • For covering of bills and expenses on period when cash flow is low
  • When your company has a narrow window of opportunity to buy inventory and equipment at affordable rates
  • When your business needs extra funds or solid cash flow, especially on cases when new products are introduced, clients are increasing, and production is demanding
  • To handle seasonal fluctuations in business 
Best Place To Get A Business Line of Credit

Choosing the Right Business Line of Credit 

Where is the best place to get a business line of credit? Choosing the best business LOC generally comes down to personal preference and need. There are numerous business lines of credit available, but here are a few that come highly recommended by financial experts:

1. Divvy – A Line of Credit with Powerful Tools

One company you should definitely take a look at is Divvy. This innovative platform offers businesses lines of credit and credit cards for businesses, much like its competitors mentioned here. However, in addition to the financial instruments, Divvy also offers its customers powerful tools like expense management and budgeting apps, as well as the ability to send and receive payments as well. 

Pros

  • Powerful financial tools for small businesses
  • Lucrative rewards program for frequent users
  • Good security

Cons

  • Uneven customer service support
  • High level of transactions required to unlock some platform features and services

Check out our in-depth Divvy review here.

2. Fundbox – Overall Best Business Lines of Credit

Fundbox’s business line of credit is arguably the best in the market. It is an online credit lender that only lends to businesses in the United States.

They provide revolving business credit up to $150,000 in total. Lenders must have a minimum FICO score of 600, and the minimum and maximum loan terms are 24 and 52 weeks, respectively. This line of credit does necessitate that the business be at least 6-months old and generate a consistent minimum yearly dividend of $100,000.

Pros

  • No prepayment fee
  • Provide up to $150,000 worth of credit
  • Longer loan tenure of 12 or 24 weeks
  • Credit climbs up for loans repayable between 12 or 24 weeks
  • No origination fee

Cons

  • Interest rate applies

3. Ondeck – Best For Short-term Financing Needs

With an A+ rating from the Better Business Bureau and a rating of 4.9/5 on Trustpilot, Ondeck is without a doubt one of the best business lines of credit on the market. Whether you need money to manage your cash flow, pay a role, or buy inventory, this business line of credit provider has a wide range of credits to offer and is highly recommended by experts.

It offers business credit ranging from $6000 to $100,000, repayable in 12 months. To be eligible for this business line of credit, you must have a personal FICO score of 600, $100,000 in annual revenue, a business bank account, and have been in business for at least a year.

Pros

  • no prepayment penalty
  • Instalmental payment
  • Provide up to $100,000 worth of business credit
  • Low FICO requirement

Cons

  • Interest rates applies

4. SBA Loans – Best For Small-scale Business 

The best business line of credit for a small business establishment is the Small Business Administration, or SBA. This credit provider provides loans that are guaranteed by the Small Business Administration. By extension, this lending agency does not provide credit directly to business owners, but rather develops specific guidelines on credit offered by other loan service providers with whom it collaborates. This makes it easier for its customers to obtain credit without putting themselves at risk.

They also have competitive rates and can provide up to $100,000 in credit. Its loan requirements vary depending on the partners, but in general, one must have a properly registered business and invested equity.

Pros

  • Attractive loan rates comparable to non-guaranteed loans.
  • Relaxed overhead requirements
  • No collateral needed for some credits
  • Lower downpayment

Cons

  • Longer credit application duration
  • Limited business line of credits

5. BlueVine – Best For Fast Business Credit 

BlueVine is arguably the best in the market when it comes to providing quick business credit. It is an online credit service provider that provides business lines of credit to investors in desperate need of funds. Though it is commonly referred to as BlueVine, it has one of the most flexible credit requirements and an estimated Annual Percentage Rate (APR) ranging from 16 percent to 78 percent.

This platform will provide businesses lines of credit up to $250,000, with rates as low as 4.8 percent. Additionally, for many businesses, BlueVine will grant approval on applications in only five minutes. 

Pros

  • It offers fast business line of credit
  • Low personal credit score requirement of 600
  • It offers up to $250,000 worth of business credit

Cons

  • Short credit repayment tenure
  • Guarantee is needed

Knowing The Difference Between Secured and Unsecured Business Lines of Credit

Knowing the difference between a secured and an unsecured business line of credit can be the difference between getting that important funding with less risk and stress. Here is the distinction between the two:

Secured LOC

The lender uses collateral as a form of safety deposit with a secured business line of credit. As a result, the borrower will be less risky, given a higher credit limit with lower interest rates, and feel more secure.

Unsecured LOC

In contrast to secured credit, an unsecured credit line does not require a security deposit. This increases the risk and decreases the security. Nonetheless, for long-standing business establishments, they offer reasonable and affordable credit rates.

Conclusion

Obtaining a business line of credit can provide a lifeline to your company and help it stay healthy with its cash flow. This financial product has numerous advantages, but selecting the right line of credit from among many that will best suit a specific business establishment is equally important. So, check out some of the lines of credit discussed here, and try to find the one that will work best for you. 

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