I’ll walk you through how to get a business credit line, which can be accomplished in five major steps. Once you understand how you intend to use the credit line, you’ll need to choose the right type of line of credit, understand your qualifications, shop lenders and check your eligibility, and then apply and provide required loan documentation.
Continue reading our guide below for more details on each of the steps involved with how to get a business line of credit. Credit lines can offer flexible access to more funding on an as-needed basis and can be a useful financial tool for many companies. Bluevine, for instance, is a provider we recommend as it’s business credit line product offers low rates, fast funding speeds, and up to $250,000 in funding.
Step 1: Determine Your Needs
In addition to rates, the terms and the loan structure of your small business credit line can vary depending on the lender and type of credit line you choose. This can include things like funding speed, credit limits, minimum draw amounts, and more.
Since the best small business credit line will largely be determined by how you intend on using it, having a good understanding of your business funding needs can help you get the right financing option, something that can also save you time and money in the long run.
We recommend considering the following when it comes to how you plan on using your credit line:
Think about how often you’ll draw funds from the line and how much your typical draw amount will be. Some lenders charge inactivity fees for credit lines not utilized for a certain period of time. Others may assess fees for each individual draw.
If you don’t plan on using the credit line regularly, ensure you won’t be charged inactivity fees. On the other hand, if you plan on making frequent draws, it may be wise to avoid lenders that have a per-draw fee.
Some lenders have a minimum draw amount, so you may want to avoid companies that require you to borrow more money than what you may need. Additionally, you’ll want to ensure that the maximum loan amount or credit limit is sufficient for your needs.
Many small business credit lines are a form of short-term financing, with repayment terms rarely exceeding 36 months. Depending on how quickly you plan on paying down the loan balance, ensure that the loan term and repayment amounts will not negatively impact your business cash flow. If you plan on paying off balances quickly, be aware of lenders that charge a prepayment penalty.
Step 2: Understand Your Loan Options
A small business line of credit has two options: a secured and an unsecured line of credit. While the details of the rates and terms available on each can vary from lender to lender, each has its own set of pros and cons that generally hold true regardless of which provider you choose.
Secured | Unsecured | |
|---|---|---|
Rates & Fees | Lower | Higher |
Maximum Credit Limit | Can be higher if supported by the value of collateral | Lower |
Qualification Requirements | Easier | More difficult |
Collateral Requirement | Required | Not required |
Personal Guarantee | May be required | May be required |
Funding Speed | Slower | Faster |
A secured line of credit is backed by collateral, which can be taken by a lender in the event you default on the loan. As a result, this type of loan represents less risk to the lender because it has more options to recoup its potential losses. This level of risk is represented in the form of lower interest rates. However, since the value of the collateral must be verified, funding speeds tend to be slower.
On the other hand, an unsecured line of credit is not backed by any collateral, making it a greater risk for a lender. Since no collateral needs to be verified, funds can be disbursed more quickly compared to a secured line of credit. Interest rates tend to be higher, and lenders are likely to focus more on your ability to repay the loan.
Step 3: Understand Your Qualifications
Common qualification requirements for a small business line of credit cover areas of your credit, business history, and finances. Understanding where you stand in each of these areas will help you choose lenders you’ll be eligible for, and give you an idea of how likely you are to qualify for a lender’s best advertised rates.
The information in your credit reports shows lenders how much debt you have, how you’ve managed your loan payments in the past, and how likely you are to continue making timely payments. Data in your credit reports is also used to create a credit score, a number designed to show your overall credit risk.
The length of time your company has been in business can dictate the loan programs and rates you’re eligible for. Startups that have been in business less than two years have a high failure rate, a fact that lenders are aware of, and can make qualifying for a loan more difficult.
Since the revenue earned from your business is the primary source from which loans will be repaid, lenders will evaluate multiple aspects of your company’s finances. This can include a review of your income trending, the annual revenue earned, and a financial ratio analysis.
Step 4: Shop Lenders & Check Your Eligibility
To get the best rates, terms, and approval odds, we recommend shopping rates with multiple lenders. To make the most of your time, it’s also important that you review each lender’s eligibility criteria to ensure you can qualify.
You can get a small business line of credit from many different types of lenders. This includes banks, brokers, online lenders, and credit unions. Each has its own set of pros and cons, and we recommend checking out multiple lenders before deciding on one. For an easy time picking lenders, check out our recommendations of the best small business lines of credit.
Below, we’ve outlined the typical characteristics of the different types of lenders, as well as some tips on how you can choose a provider.
The next step is to figure out where you stand when it comes to common qualification requirements. This is an essential step because the best loan for you must also be one that you’re eligible for.
We’ve outlined typical qualification requirements below. However, keep in mind that the specific eligibility criteria can vary depending on the lender you choose, so don’t be discouraged if you fall short of any of these items.
Typical Qualification Requirements | |
|---|---|
Credit Score | 600 |
Time in Business | 6 months |
Annual Revenue | $100,000 |
Collateral or Personal Guarantee | Both may be required |
When choosing a lender, you should consider features specific to the loan. You should also take into account how the lender conducts business, such as its hours of operation and customer ratings.
Loan items to consider | Lender items to consider | ||
|---|---|---|---|
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Step 5: Apply & Provide Required Documents
Once you’ve chosen a lender, you’ll need to submit a loan application. Loan applications will require you to provide information about yourself and your business. Most providers allow you to do this online, while some may require you to call or visit a physical branch.
After submitting your application, you’ll need to provide supporting documentation for things like your credit and business finances. Some lenders ask for a standard set of items as part of this initial loan application. Others may not ask for anything upfront and will instead review your application to first discuss your business needs and goals with you.
The exact documentation you’ll need to provide will vary based on your business circumstances and the provider you choose. Below is a list of commonly requested items. Having these prepared and ready to send to a lender can help expedite your loan funding speed:
- Tax returns (business or personal tax returns as applicable)
- Profit and loss statements
- Balance sheets
- Business bank statements
- Loan statements
- Lease agreements
Before you submit an application, we recommend reading our guide on how to get a small business loan. Many of the tips we provide can be combined with our business line of credit-specific advice and should help you get through the loan process more quickly.
What to Expect After Applying for a Line of Credit
Once you have provided the lender with all of the documents it has requested, your application will go through one final review to determine what you can be approved for.
1. Underwriting of the Loan
Underwriting is a lender’s process of conducting a final review of your loan application to determine if it meets the eligibility criteria. All aspects of your loan application will be reviewed, and it’s not uncommon for lenders to request clarification or additional information from you. Underwriting typically takes one to three days.
2. Reviewing the Approved Loan Terms
If you meet the lender’s eligibility criteria and you are approved, you’ll be presented with loan terms to accept, which include rates, fees, and length of repayment. Before accepting, you should review the agreement in its entirety, as it may also outline factors like prepayment penalties, early payoff fees, minimum draw amounts, and renewal options.
3. Signing Final Loan Documents
If you accept the loan terms offered by the lender, you can sign the final paperwork. Once the paperwork is fully executed and reviewed by your lender, funds will be disbursed and will typically be available for your use within 24 to 48 hours.
Alternatives to a Small Business Line of Credit
A small business line of credit will allow you to regularly draw funds to cover business expenses. However, there are other financing options available if you don’t need this flexibility, prefer to pay for expenses directly, or have difficulty getting approved.
- Term loans: A term loan is any loan that issues funds in a single lump sum. Unlike a line of credit, you do not have the ability to draw additional funds once loan proceeds have been disbursed. It can be a good option if you do not have a recurring need for funding and know exactly how much you need to borrow. Our list of the best working capital loans has several term loan options that can be used for a variety of daily expenses such as payroll, rent, and operational costs.
- Credit cards: Although similar to a line of credit, a credit card allows you to make purchases directly with the card rather than requiring you to first draw funds to cover expenses. You can typically get a revolving credit limit of up to $25,000 or more, making it a good option for small to medium business expenses. Head over to our guide to the leading small business credit cards for some options or learn more about the differences between a credit card vs business line of credit.
- Invoice factoring: If you have outstanding invoices and are awaiting payments from clients, invoice factoring can get you an advance on those funds. This type of financing is also easier to get compared to a line of credit. See our top-recommended invoice factoring companies for options.
Frequently Asked Questions (FAQs)
It’s possible to get a business credit line within 24 hours. This depends on the complexity of your finances, the strength of your qualifications, and the lender you choose.
Yes. Many of the top business credit line providers we’ve evaluated have flexible qualification requirements to include lower credit score criteria. Be aware, however, that you’ll likely get higher rates and fees in exchange for that flexibility.
Most business credit lines carry a variable interest rate that can change quarterly, semi-annually, or annually. Some, however, may offer the ability to lock a portion of your balance at a fixed interest rate.
Bottom Line
Now that you know how to get a business line of credit, you can not only save time but also improve your chances of getting approved at a lower rate. A business line of credit can be useful for a number of business expenses, whether it is for recurring or one-time needs. In fact, our guide to the best working capital loans contains several lines of credit providers because of the ability to use funds for daily expenses, payroll, rent, operational costs, and much more.
