Are you a business owner? Do you want to start a small business? Entrepreneurs and business owners always need capital to resolve cash flow issues, buy more inventory, address unexpected situations, take advantage of a great business opportunity, etc.
Access to capital whenever you need it is very important for a business. One of the issues business owners often face is getting access to capital. In this article, we will discuss how to get a business line of credit.
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What Is a Business Line of Credit
A business line of credit allows you to access capital whenever you need it by withdrawing a set amount from what is assigned to your account. With a business line of credit, you only pay interest on the cash that is withdrawn from the credit line and the unused credit doesn’t accrue interest.
A business line of credit allows you to buy inventory, and equipment, handle emergencies, resolve cash flow issues, fund an acquisition, expand your business, and many other situations.
How to Get a Business Line of Credit
Applying for and getting a business line of credit involves a few but comprehensive steps. There are many documents that you will have to submit as well as certain personal information. We discuss the steps involved in how to get a business line of credit below.
1. Personal Information
Although a business line of credit is for your business, there is a real person behind that business. Your personal creditworthiness will be a major factor when lenders decide whether to approve your business line of credit application and how much it will be.
Your personal FICO score is important when applying for a business line of credit. The higher your personal credit score, the better your chances of getting approved and acquiring a high business line of credit with the best rates and terms.
Additionally, your personal credit score helps lenders determine if collaterals will be needed or not with regard to your business line of credit application. Therefore, if your personal credit score is below 650, it is wise to work on improving it before applying for a business line of credit.
However, that may not be ideal for you. You can still apply for a business line of credit with a personal
credit score lower than 650. You may be approved for a lower business line of credit with higher rates and terms.
2. How Much Funding You Need
When you are deciding on applying for a business line of credit, one of the important things to give serious thought to is the amount of funding you need. This is very important as you want as much as possible taking into consideration your personal and business information. You want a business line of credit that will cover most of your cash issues for the smooth running of your business.
There are many online and traditional lenders that can approve a business line of credit up to $250,000.00. However, there is a strong possibility that you may not qualify for a business line of credit in the amount of 250,000.00 on your first try.
Nonetheless, there is always the possibility of requesting an increment on your business line of credit later. You will have a greater chance of getting an increment if you have been paying off the withdrawals as well as increasing your credit score and growing revenue.
3. Compare Options
There are many different options to consider when applying for a business line of credit. You will have to determine which business line of credit is the best option for your business. There are secured and unsecured lines of credit, short-term vs. long-term lines of credit, as well as traditional vs. online business lines of credit.
A short-term line of credit is a credit line with a short repayment term, usually for a year or less while a long-term credit line lasts longer than a year.
Short-term credit lines are more lenient and easier to qualify for, feature a less complicated application process, and you can get access to the funds quicker. However, short-term credit lines are more expensive with higher interest rates and terms, and often require that you pay back faster.
There are also secured and unsecured business lines of credit. An unsecured credit line doesn’t require any collateral or asset. However, there isn’t a truly unsecured business line of credit.
The lender will have some way of reducing its risk when providing a business line of credit. The lender may have a lien on the business or personal guarantee to protect its interests and minimize the risk. A secured credit line will have a collateral or business asset to protect itself and minimize risk.
Traditional banks’ credit lines have more reasonable interest rates and terms. They are often long-term and are usually secured lines of credit. However, these credit lines are difficult to get approved for, require more documentation, and are slower to fund.
On the other hand, online bank credit lines are more flexible as they work with applicants with bad credit, startups, and businesses with low annual revenue. They often have a less complicated application process and tend to fund the line of credit fast, even though they are more expensive.
4. Business Performance
How well your business is doing is another important factor that lenders consider when reviewing your business line of credit application.
Lenders will look at your business revenue to determine if your business is actually generating good revenue and that the business is doing well. Some lenders have a minimum annual or monthly business revenue requirement which often ranges from 10,000.00 per month to $250,000.00 per year.
Moreover, traditional banks are more stringent regarding the monthly or annual revenue requirement than online lenders. Online lenders are more lenient with revenue and other requirements as they can charge more interest rates; that is their tradeoff.
Additionally, time in business is another factor that lenders consider when deciding on your business line of credit application. Most lenders want a business that has been in existence for at least one to two years. However, it is not uncommon for online lenders to be more lenient on this requirement. You can find online lenders that require only six months.
5. Documentation
When applying for a business line of credit, there are many documents that you will have to submit. Therefore, it is always a good practice to keep all of your business documents stored in one location that you can easily access. Some of the documents that you will need for the application process are:
- Business licenses
- Business EIN
- Personal and business bank statements
- Personal and business tax returns
- Articles of incorporation
- Profit and loss statements
- Legal contracts and agreements
- Social Security Number
6. Application Submission
After collecting all of the required documentation, the next step is to submit your application. This can either be online or in person. The lender may require you to submit additional documentation after reviewing your application.
Therefore, be ready for such a request. Some lenders, especially online lenders can give you the final decision in a day or two while traditional lenders may take a few days up to weeks.
Business Line of Credit vs Credit Card
| Business Line of Credit | Business Credit Card |
|---|---|
| Higher credit limit. | Lower credit limit. |
| Access to cash. | Charged a cash advance fee for getting cash. |
| May be secured by collateral or assets. | Can be secured by collateral, but not as common. |
| No interest-free period. | May include 0% interest promotion. |
| Lower interest rates than credit cards. | Higher interest rates than lines of credit. |
| Doesn’t typically include rewards. | Often have rewards or cash back for spending. |
7. Best Business Line of Credit Lenders
There are many business lines of credit lenders to choose from. However, you should spend some time reading about each lender, their application process, interest rates and terms, and other requirements. Below are some of the business lines of credit lenders that you can do some research on.
1. BlueVine
BlueVine requires a minimum personal credit score of 625, has to be in business for at least two years, and has a monthly revenue of $40,000.00 per month or $480,000.00 annually. BlueVine offers credit lines between $6,000 and $250,000.00.
Additionally, with BlueVine, cash can be available in 12 to 24 hours. BlueVine may require weekly payments and a personal guarantee.
2. OnDeck
OnDeck requires a minimum personal credit score of 625 with an annual gross revenue of at least $100,000.00. OnDeck requires that you have been in business for a minimum of one year with no bankruptcies in the past two years. It offers a credit line between $6,000.00 and $100,000.00 with 12-month repayment terms that reset after each withdrawal. OnDeck requires weekly payments.
3. American Express Business Blueprint
American Express Business Blueprint requires a minimum credit score of 660 and to have been in business for at least a year with a valid business checking account with an average monthly revenue of at least $3,000.00. It offers business lines of credit from $2,000.00 to $250,000.00 with six-, 12- or 18-month terms.
4. Headway Capital
Headway Capital requires a minimum credit score of 600 and a minimum of one year in business. Headway Capital requires a minimum annual revenue of 50,000.00. Most borrowers are subject to a 2% draw fee and there are no prepayment penalties. The funds are usually available by the next day after approval and there are flexible qualification requirements.
5. Wells Fargo
Wells Fargo line of credit is an unsecured credit line for borrowers with less than two years in business. It features no annual fee or prepayment penalties. Wells Fargo credit lines are available for up to $50,000.00.
It may take longer to fund than online lenders and you will need a checking account for online bill pay. A minimum credit score of 680 is required and personal liquid assets must be less than $500,000.00.
6. Fundbox Line of Credit
Fundbox offers quick funding of up to $150,000.00 for businesses that have been in existence for at least six months. A minimum credit score of 600 is required with a minimum annual revenue of $100,000.00.
The application process is simple and you can get access to capital as soon as within one business day after approval. There are no prepayment penalties, maintenance, or inactivity fees.
Additionally, it features high interest rates and may require personal guarantees. You will make weekly repayments over a period of 24 weeks.
7. Bank of America Line of Credit
Bank of America’s credit line requires a minimum credit score of 670 and a minimum time in business of six months. An annual revenue minimum of $50,000.00 is required and a Bank of America checking or savings account is required. Additionally, a minimum deposit of $1,000.00 is required.
Moreover, the credit limit is based on the security deposit you provide. There is no origination fee and you can ascend to an unsecured credit line with responsible spending.
The Bottom Line
A business line of credit allows a business owner to easily access capital for any need that may arise. It allows you to withdraw funds from the amount allotted to your account. The good thing about business lines of credit is that you only pay interest on the amount you withdraw.
There are traditional and online business lines of credit. They have their advantages and disadvantages. Most online lenders are more lenient with qualifications and can fund faster than traditional lenders who are more stringent with approvals. If you are interested in getting business lines of credit, then watch this webinar in which industry experts discuss secrets and strategies to help you get up to 250,000.00 in business funding.