How To Get A Business Line Of Credit In 5 Steps (2024)

A business line of credit is a handy way to access financing as needed rather than receiving a lump-sum payment such as with a small business loan. Business lines of credit can help you manage cash flow, buy inventory or pay for an unexpected expense. Better yet, you only pay interest on the amount you use, not the full approved credit line.

While the application process varies depending on the specific lender, you can follow these general steps to get a business line of credit.

What Is a Business Line of Credit?

A business line of credit is a form of revolving credit that allows you to withdraw money as needed, as opposed to a typical loan that’s paid in a lump sum. A business line of credit can be best for managing cash flow and ongoing expenses, and you can draw on it up to a predetermined limit.

With this line of credit, you only pay interest on the cash you draw from the credit line and any unused credit doesn’t accrue interest. Like a business loan, a business line of credit can be unsecured or secured with collateral.

A typical business line of credit has a draw period that lasts for anywhere from one to five years, and during that time, you can withdraw money from your line of credit. Once the draw period ends, you enter repayment, during which you pay back both the principal and interest. Since many have variable interest rates, the cost of your debt can fluctuate.

How Does a Business Line of Credit Work?

Small business lenders may structure business lines of credit in slightly varying ways, but generally, there is a draw period and a repayment period. During the draw period—which typically lasts two to five years—you can borrow money from the line of credit up to the predetermined limit.

During the draw period, the money that you borrow accumulates interest. If you don’t borrow any money, you won’t pay any interest, but you may still need to pay a fee to keep the credit line open.

You can repay the money you borrowed during the draw period, but if you don’t, you’ll begin repayment once the draw period ends. At that point, repayment begins and you won’t be able to borrow any more money on this line of credit.

You’ll repay the loan in installments, similar to a business loan until you’ve repaid the borrowed amount in full. Since the interest rates on a business line of credit are often variable, they can change throughout the life of the line of credit.

5 Steps To Get A Business Line Of Credit

1. Decide How Much Funding You Need

When you apply for a business line of credit, you’ll have to determine how much credit you need. Available loan amounts depend on the lender but typically range from $2,000 to $250,000. Because you don’t pay interest on the full amount and only on what you use, it’s acceptable to ask for a higher limit than you’ll likely need—as long as you don’t get greedy and spend more than you can afford.

If you need access to more funds after you receive your initial credit line, you can request a line of credit increase. Depending on your business’s revenue and credit history, the lender may approve this request or ask for collateral—something of value it can repossess if you fail to repay—to secure the line of credit.

2. Check Your Eligibility

While there are several different factors that lenders consider, there are a few that are most vital, including:

• Credit history. Your credit history illustrates the likelihood of you defaulting. While most lenders require a personal credit score of around 680, some lenders accept scores as low as 580 to 600. However, the higher your score, the better chances you have at securing a lower interest rate or higher loan amount.
• Business revenue. Most lenders have a minimum annual or monthly business revenue requirement. This varies depending on the specific lender but can range anywhere from $10,000 per month to $250,000 per year. Online lenders typically have less stringent revenue requirements compared to traditional banks.
• Time in business. Most banks require that a business has been in operation for at least one to two years, but some online lenders may only require six months. The longer the business has been around, the more stable it looks to potential lenders—and the lower interest rate you may receive.

3. Research and Compare Lenders

Once you understand how much financing you need and your eligibility, it’s time to research lenders that match up with that information. Be sure to compare different lenders’ maximum credit limits, repayment terms, minimum requirements and APR ranges, too.

There are a few different types of institutions that you can apply through:

• Banks and credit unions. Traditional lenders, such as banks and credit unions, are typically best for business owners with high credit scores, lengthy business histories and substantial annual revenue. New businesses may not qualify for loans through these institutions.
• Online lenders. Online lenders are best for business owners who may have lower credit scores, shorter business histories and lower business revenue. Because online lenders typically approve riskier prospective borrowers, interest rates may be higher than banks and credit unions.

4. Gather Required Documentation

Once you find your preferred lender, it’s time to gather the necessary documents to prepare for the formal application process. This will usually include the following:

• Personal and business tax returns
• Business licenses
• Articles of incorporation
• Personal and business bank statements
• Profit and loss statements
• Financial statements
• Business plan
• Building lease

If you’re unsure what documents are needed, contact the lender before applying.

5. Submit Your Application

Lastly, submit your application online or in person. Turnaround times vary by lender, and it can take as little as five minutes or as long as several days to get a decision. Your lender may also require you to provide additional documentation after reviewing your application.

Common information your lender may ask for includes:

• Your name
• Business name
• Social Security number (SSN)
• Desired loan amount
• Loan purpose
• Business Tax ID
• Annual revenue

If your loan is approved, a lender will send you a loan agreement to sign before issuing your line of credit you can draw from.

Common Business Line of Credit Application Mistakes

Like with any other loan application, it pays to be accurate when you complete a business line of credit application. Make sure to double-check the numbers, contact information and other relevant details before submitting. If you include an error, it could delay the process or hurt your chances of being approved.

When listing your contact information, use an email address or phone number that is frequently checked. The lender may contact you with additional questions, so it’s essential that you don’t miss a phone call or email.

Business Line of Credit Rates and Fees

Lenders thatoffer business lines of creditcharge a variety of fees and penalties. Before you finalize an application, compare fees and interest rates to ensure you’re getting the best deal.

Interest Rate

When you draw money from the business line of credit, you will pay interest on the withdrawn amount. The interest rate may be either variable or fixed: A fixed rate will stay the same throughout the life of the loan while a variable rate will fluctuate depending on the overall market interest rate. Rates typically range from 10% to 99%.

Draw Fee

Some lenders may charge a draw fee, which is incurred any time you draw upon the line of credit. The draw fee varies based on the lender but is usually between 1% and 2% of the amount withdrawn at the time. For example, if your line of credit has a draw fee of 2% and you draw $10,000, the draw fee is $200.

Payment Processing Fee

Accessing your business line of credit will likely come with a payment processing fee if you choose to have the money sent via wire transfer. This fee is usually between $15 and $35. You can typically avoid this fee by choosing standard ACH processing, but you may have to wait an extra one or two business days to receive the funds.

Late Fee

The lender will usually charge a late fee if you miss the payment due date. This is typically a percentage of the payment amount and depends on the particular lender.

Termination Fee

A line of credit typically has a fixed end date. If you want to close out the line of credit before that date, you may have to pay a termination fee between 1% and 2% of your loan amount. However, not all lenders charge a termination fee.

Prepayment Penalty

If you repay the withdrawn amount ahead of schedule, some lenders may charge you a prepayment penalty, usually between 3% and 5% of the balance. Look for a lender that does not charge a prepayment penalty.

Best Business Line of Credit Lenders

Trying to find a line of credit for your company? Here are the top online business line of credit lenders.

BlueVine

BlueVine offers business lines of credit between $6,000 and $250,000, and charges interest rates starting from 6.2%. Terms are either six or 12 months. To qualify for a BlueVine line of credit, you must have a minimum personal credit score of 625, $40,000 per month in revenue or $480,000 annually, and be in business for at least two years (on the Flex 6 plan).

OnDeck

OnDeck offers lines of credit between $6,000 and $100,000 with 12-month repayment terms that reset after each withdrawal—payments are due weekly. To be eligible for an OnDeck line of credit, you must have a minimum personal credit score of 625, business annual gross revenue of at least $100,000 and have been in operation for at least a year.

American Express Business Blueprint™

American Express Business Blueprint offers the American Express® Business Line of Credit with lines of credit from $2,000 to $250,000 with six-,12-,18- or 24-month terms. To be eligible for a business line of credit, applicants must have a minimum personal FICO credit score of at least 660 at the time of application, have been in business for at least one year, have a valid business checking account and have an average monthly revenue of at least $3,000. The required FICO score may be higher based on your relationship with American Express, credit history, and other factors. Total monthly fees incurred over the loan term range from: 3% to 9% for 6-month loans, 6% to 18% for 12-month loans, 9% to 27% for 18-month loans and 12% to 18% for 24-month loans. All businesses are unique and are subject to approval and review.

Frequently Asked Questions (FAQs)