Best Business Line of Credit in 2023

Business line of credit requirements

Lenders typically look at the following to determine your eligibility for a business line of credit:

  Credit score: Your personal FICO Score and business credit report both play a role in determining your creditworthiness. Many lenders require a minimum credit score of 600 (or more) when you apply for a business line of credit, although having a higher score can help you secure a better interest rate.

  Time in business: Most lenders want a steady track record of at least one to two years, although certain lenders will work with those in operation for only six months.

  Annual revenue: You must show a steady income stream to qualify for small business financing. The amount varies greatly, with some lenders accepting annual revenue as low as $36,000 while others want to see $480,000.

Secured lines of credit vs. unsecured lines of credit

Business lines of credit can be secured or unsecured. A secured line of credit requires collateral, such as real estate or equipment. If you fail to repay, the lender could seize your assets.

Although an unsecured business line of credit doesn’t require collateral, some lenders may put a lien on your business assets or require you to sign a personal guarantee. In this case, you could lose certain assets if you default.

Business line of credit vs. business credit card

A business credit card is another form of revolving credit where you only pay for what you use. The advantages of a business credit card include a quick and easy application process and the ability to use it almost anywhere while earning rewards and bonuses.

The most significant difference between business lines of credit vs. business credit cards is that credit cards carry higher interest rates than lines of credit, typically ranging from 15.24% to 30.49%. Small business lines of credit can be used in more situations. For example, you can’t use a credit card for leasing expenses, payroll or certain vendor invoices, but a small business credit line can cover those expenses.

Here is how to get a business line of credit in six steps.

1. Decide why you need a line of credit — and how much.

Determining why you need the credit line for your business is essential. Do you need flexible funding for inventory purchases or help to cover cash flow gaps, or is it more of a cushion for emergencies? Once you know the purpose of the financing, you can then decide how much you’ll need.

2. Evaluate your qualifications.

Online lenders may be more lenient with business loan requirements than brick-and-mortar banks. However, you will likely pay higher fees and have less flexible terms with an online lender.

If you want a secured line of credit, evaluate the collateral you can provide, such as inventory or equipment. Alternatively, your lender may require a cash security deposit, which can be refunded depending on your account performance.

Check your credit scores in advance to know where you stand. Boosting your credit now can help you secure a better rate and save more money in the long run.

3. Research lenders.

Once you know what’s out there and within your reach, it’s time to compare lenders to find the best business line of credit for your needs. Pay attention to whether the line is for a fixed term, such as 12 or 24 months, or if it renews annually.

If it offers an annual renewal, check whether there is a yearly fee, which can sometimes reach up to $175. It’s also a good idea to see if there is a required minimum payment each month.

Be sure to read business lender reviews before proceeding with the loan application.

4. Gather required documents

When applying for a business line of credit, each lender’s required documents will vary. In general, you can expect lenders to ask for a business plan, personal and business tax returns, financial statements and a balance sheet. Lenders may also have other requirements, such as a business bank account.

5. Apply

The application and approval timeline for a business line of credit can range from one day to several months. For example, Bluevine states that you can receive a decision in as little as five minutes, whereas Wells Fargo can take up to two weeks.

Most lenders will outline the timeline so you know when to expect funds. You may need to provide additional paperwork and documents after submitting the initial application, but your lender will guide you through the process.

A business line of credit is similar to a short-term business loan or emergency business loan in that you can use it for various business expenses. However, a business line of credit gives you access to immediate funding without the pressure to use the total amount.

If you need to tackle long-term expenses, a term loan or working capital loan could be a better fit. Business loans typically have fixed interest rates and business lines of credit have variable rates, which may be another deciding factor.

When picking the best business line of credit for your company, you’ll want to compare the following:

• Interest rate
• Repayment term
• Time to fund
• Additional fees

Most importantly, make sure you can meet the lender’s specific requirements and that their products are available in your state and for your type of business.