A small business line of credit is used for smaller ongoing expenses such as payroll, inventory, and working capital. It typically has shorter repayment terms and higher rates than term loans, but you are only charged for the amount you use. To apply, you’ll need to select a lender, prepare documentation, and submit an application.
The quickest way to get a small business line of credit is with BlueVine. Their online application requires minimal information and business can be funded in as little as 24 hours. BlueVine offers lines of credit as large as $250,000 with rates starting at just 4.8% and terms up to one year.
The six steps to follow for business owners wondering how to get a business line of credit are:
1. Determine Why You Need Funding
As a small business owner, you have many potential financing options that can help you achieve your business goals. Each of your financing options has a specialized purpose, with lines of credit typically reserved for ongoing expenses such as inventory, payroll, and general working capital. The best lines of credit are also revolving, allowing you to re-borrow funds once they’ve been repaid.
Before deciding if a small business line of credit is the right option for your business, you should ensure that you can answer what a business line of credit is and how does a line of credit work.
What a Business Line of Credit Is
A business line of credit allows you to borrow funds on demand up to your credit limit. You only pay interest on what you borrow, while having the option doesn’t cost you anything. Most lines of credit are revolving, which means when you repay the amount you borrowed, you can borrow it again.
Here is an example of how the revolving feature of a small business line of credit works:
A small business owner gets approved for a $30,000 line of credit. She immediately draws $10,000 to pay for payroll expenses and new inventory. This leaves her with $20,000 in available credit and $10,000 in debt. Over the next few months, the business owner repays the $10,000 and checks her available line of credit. Because the small business line of credit is revolving, she now has $30,000 available again.
When a Business Line of Credit Is Right
Whether or not a business line of credit is right will depend on the frequency with which you will need to draw funds, and the amount of time you need to repay it without hindering your business cash flow. You will typically have up to one year to repay the money you borrow, and you should leave a line of credit for regular expenses rather than a large project.
If you answer yes to any of the following questions, then a small business line of credit is your best financing option:
- Is this a regularly occurring business expense?
- Does the business have sufficient cash flow to repay the principal and interest within one year?
- Can I take advantage of the revolving feature for future financing?
- Does my business need access to financing on demand, for unpredictable expenses?
If, however, you are financing a large and unique project that will require payments over several years, then you should consider an alternative, like a term loan. Additionally, if the reason that you need financing in the first place is due to unpaid invoices from your business or government customers, then invoice factoring can be a less expensive option for your business in the long term.
2. Consider the Costs & Terms
You can expect an APR from 7% to 100% with a business line of credit. The lowest rates are reserved for prime borrowers with 700 or higher personal credit scores. Traditional banks will typically have lower rates but longer funding times up to 30 days, compared to online lenders that can fund you in two to three days. Unsecured lines of credit typically don’t exceed $250,000 and have repayment terms of six to 12 months, with both weekly and monthly payments available.
The typical terms you can expect for a small business line of credit are:
- Expected APR: 7% to 100%
- Loan amount: Up to $250,000
- Repayment term: Typically six to 12 months
- Repayment schedule: Weekly or monthly
Most providers, particularly online lenders, offer small business lines of credit up to $250,000 with repayment terms up to 12 months. If you need a larger small business line of credit or a longer term, a local bank may be a good option. Many businesses, however, will find $250,000 more than sufficient, as the businesses typically receive limits ranging from $6,000 to $30,000. Plus, with an online lender like BlueVine, you can get funded in a matter of days.
3. Meet the Qualifications & Other Requirements
To qualify for a line of credit, you will need to have a personal credit score of at least 550 and be in business for at least six months. Additionally, most lenders will request your tax returns or financial statements to verify that your annual revenues are at least $50,000. Finally, when you accept an offer for a line of credit, you will typically need to provide a personal guarantee, and a blanket UCC filing will be made against your business assets.
The minimum qualifications and other requirements you can expect when applying for a small business line of credit are:
- Personal credit score: 550 or higher (check your credit score)
- Annual revenue: $50,000 or more
- Time in business: Six months or longer
- Collateral: Blanket UCC filing typically required
- Personal guarantee: Typically required
A blanket UCC filing pledges your business assets as collateral for the loan in the event of default, and is typically required. The personal guarantee is a signed promise to a lender, backed by your personal assets, that you will repay a loan. About 80% of lenders will require a personal guarantee. However, most traditional banks will have higher minimum qualifications than online lenders.
OnDeck, an online lender, has some of the most accessible terms for most businesses, offering a small business line of credit to business owners who have a 600 or higher credit score, one year in business, and at least $100,000 in annual revenue. This can help many businesses qualify, but newer businesses with less than a year of operations may have difficulty and should consider other startup financing options.
4. Compare Small Business Line of Credit Providers
When deciding whether to work with an online alternative lender, a traditional bank, or a credit union, there are some important factors that small business owners should keep in mind. First and foremost, you’ll need to determine how quickly you need the funds and how much you’re going to need. While you can get approved for larger lines of credit with a bank, it will typically take much longer to do so.
The two common types of lenders you can use to apply for a small business line of credit are:
Your Local Bank or Credit Union
Your local bank or credit union can be a great place to start applying for a business line of credit, especially if you already have your business checking account and an established relationship with them.
They can typically offer you the best terms and the lowest rates, but the application process will require more documentation than an alternative lender, and can take 30 or more days to get funded. If you are having trouble qualifying for an unsecured business line of credit, a bank can also offer you an asset-based secured alternative backed by your accounts receivables, inventory, or equipment.
If you would like to complete your application online or need access to funding quickly, you should apply for a fast online business loan. You will typically receive a smaller credit limit, but the paperwork required is minimal, and you can qualify and get funded in as quickly as one business day. While credit line limits are typically advertised up to $250,000, businesses will usually be approved for $6,000 to $30,000.
Two good online small business line of credit options are:
BlueVine Small Business Line of Credit
BlueVine offers a line of credit up to $250,000 for terms of up to 12 months, and both weekly and monthly payments. You’ll need to have at least $100,000 in annual revenue and a credit score of 600 or greater to qualify for starting rates as low as 4.8% of the draw amount. If you compare BlueVine to OnDeck, you could potentially receive lower rates with OnDeck, but you lose the monthly payment option.
OnDeck Small Business Line of Credit
The line of credit offered by OnDeck has a limit of $100,000 with terms up to six months and weekly payments. Prime borrowers (700 or greater personal credit score) can qualify for their lowest rates with an APR as low as 13.99%, but if you have a credit score of at least 600 and annual revenue of $100,000 or more, you can qualify. Comparing OnDeck to Kabbage, another line of credit provider, Kabbage can provide up to $250,000 with monthly payments, but their rates are higher.
5. Gather the Required Documentation
Most of the information that you need in order to complete your line of credit application should be readily available. Your tax ID, personal income, and business financials (including recent tax returns) will always be required, but with traditional lenders, you’ll also need extensive financial reports. However, an online lender can connect to your business bank account and retrieve the financial information directly, saving you precious time.
The details you will typically need to provide when applying for a small business line of credit are:
- Business address
- Phone number
- Tax ID
- Nature of business
- Date business was established
- Number of employees
- Annual gross revenue
- Personal information including name, address, Social Security number, and income
With a traditional lender like a bank or credit union, you will need to provide additional information when applying for a business line of credit. This includes business financial statements, personal financial statements, business tax returns, and personal tax returns. Some banks will even require accounts receivable aging reports, accounts payable aging reports, and inventory reports to determine if you qualify.
Gathering this paperwork can use up valuable time that could be better spent on running your business. Online lenders like OnDeck and BlueVine typically require the least amount of documentation, and can link to your accounting system in order to determine your qualifications. This saves you time and gets you the funding your business needs quicker.
6. Submit Your Small Business Line of Credit Application
With an online lender, you can submit your application entirely online, and it typically takes a matter of minutes to complete. However, with a traditional bank or credit union, you will usually have to apply in person, which can take a month and makes it more challenging to compare the line of credit rates and terms quickly.
Although exact applications will vary by lender, you can expect the following application process when:
Applying for a Small Business Line of Credit With a Traditional Bank
Although many traditional banks now offer an online application, you will typically need to be located in a state that has a local branch. Most banks will require you to come in and submit your business tax returns, fill out a paper application, and gather any additional information. The total application time can take up to a month, but you can shorten that by preparing your documents early.
Applying for a Small Business Line of Credit With BlueVine
To apply for a BlueVine line of credit for small business, you’ll need some basic business and personal information. The process is relatively simple; once you’ve filled out your business profile, you will be asked to connect your business bank account to determine your eligibility and fill out your personal information. Approval and funding can be as fast as 24 hours after completing your application.
Applying for a Small Business Line of Credit With OnDeck
When applying online with OnDeck, you’ll be asked to fill in your personal and business information as well as your funding request. After an initial soft credit check and verification of your business, OnDeck will request that you either link to your business bank account or upload the last three months of bank statements in the form of a PDF. After that, approval and funding typically follow in as little as 24 hours.
Tips on Getting Approved for a Small Business Line of Credit
In preparing a guide on how to get a business line of credit, we consulted experts for tips on getting approved that small business owners should consider. Recommendations include having a plan for how the funds will be used, ensuring your recent credit history is good, and being open to receiving less than you applied for.
Some tips for getting approved for a small business line of credit are:
Have a Plan for How You Will Use the Funds
“Far too many businesses start applying for a line of credit without a crystal clear plan on how it would benefit their business. We always suggest you have a growth plan for the next 12 to 24 months. Figure out exactly what assets and resources you’ll need to achieve your goals and create a budget. Once you have a game plan ready, it becomes easier to calculate exactly how much funding you need from a lender.”
– Nishank Khanna, Chief Marketing Officer of Clarify Capital
Your Recent Credit History & Financial Performance Matters
“If you are applying for a small business line of credit, most lenders will evaluate your business bank statements, business credit reports, and personal credit reports. Just know that even if your small business did poorly during the financial crisis or you have had a bankruptcy in the past, you can still get extended a small business line of credit. Overall, it’s important that your recent statements and credit history are positive.”
– Brian Meiggs, Founder of MyMillennialGuide.com
Be Ready to Accept Less Than You Applied For
“Be prepared to accept a lower amount than you requested when you’re starting out, especially if you have a good deal with a local bank through which you have been approved. Keep in mind that this opens the door for the possibility of a larger line of credit with them in the future, rather than paying higher interest rates early on.”
– Jason R. Hill, Founder of Life Insurance for SBA Loans
Alternatives to a Small Business Line of Credit
Choosing the right mix of business financing is an important step in ensuring your business is well equipped to expand and serve your customers. You have the option of using longer-term loans, factoring your invoices to free up cash flow, and financing smaller purchases with a business credit card. You will typically find that your business is best served by taking advantage of several forms of financing for different purposes.
Some financing alternatives to a business line of credit are:
Term Loan Alternative to a Business Line of Credit
When your business needs financing for a large project, which typically requires getting a single large lump sum upfront with longer repayment terms, you should consider getting an online business loan. If you need a term loan but you still want the option of a line of credit, selecting a lender that can provide you with both will save you time and effort in applying.
OnDeck offers a business line of credit up to $100,000 for your regular expenses and a term loan up to $500,000 for larger projects. Both offer low rates to borrowers with credit scores above 680 and an application process that takes 15 minutes. Once approved, funding follows in as little as 24 hours.
Invoice Factoring Alternative to a Business Line of Credit
When you’re evaluating why you need a small business line of credit, you may discover that your business is earning sufficient revenue but your customers are not paying their invoices quickly enough. This typically happens when you offer extended terms to other businesses and governments.
While you still need to pay staff and get inventory, the unpaid invoice sits, creating a gap in your cash flow. To solve this problem, you can use invoice factoring, which allows you to sell your invoices for 80% to 90% of their value upfront, and collect the remainder, less a small fee, when the invoice is paid.
For unpaid invoices due in the next 90 days from business-to-business (B2B) and business-to-government (B2G) customers, BlueVine offers invoice factoring up to $5 million, in addition to their line of credit of up to $250,000. Both have low starting rates, quick applications, and make funding available to you in just one to three business days.
Business Credit Card Alternative to a Business Line of Credit
In some cases, you may be deciding between a business line of credit versus credit card. In certain instances, a small business credit card can be a better option. This is typically the case if the amount of financing you need is under $15,000 or you regularly make purchases online for your business and wire transfers are not accepted. In addition to the convenience, paying off your business credit card monthly will save you money and earn you rewards in the process.
There are different rewards, credit limits, interest rates, and perks offered by credit card providers. Selecting the right small business credit card is easy with our Business Credit Card Marketplace, a tool which allows you to sort and filter offers to find the card that’s best for your business.
Frequently Asked Questions (FAQs) About How to Get a Business Line of Credit
As with any type of financing, business owners have questions that may be more specific to their business or to their situation. We covered the process of how to get a business line of credit in this article, and below are some of the most frequently asked questions by small business owners. If we haven’t addressed your question, feel free to ask it in our Fit Small Business forum.
The most frequently asked questions about how to get a business line of credit are:
How do I increase my business line of credit limit?
As long as you are maintaining or improving your personal credit score, making timely payments, and your business revenue is growing, you can likely increase the limit of your business line of credit. Sometimes this increase happens automatically, but other times you need to submit a specific increase request to your lender.
Is it hard to get a business line of credit?
Typically, if you’re well-qualified, it isn’t difficult to get a line of credit. Startups, micro businesses, and borrowers with low personal credit scores may have some difficulty. This is because most lenders prefer to lend to companies and owners with cash flow, collateral, and good credit scores. However, there are alternatives, like startup business loans.
Is a business line of credit a good idea?
A business line of credit allows you cover working capital, stock additional inventory, supplement your cash flow, and fund payroll gaps. You also won’t pay interest for unused funds. If you need to use a large lump sum for renovations or another major expense, a small business loan will typically be a better option.
What is a business line of credit used for?
A business line of credit is used to cover working capital expenses, like payroll and inventory. Due to the revolving nature of the line, it can be reused once payments are made, making it a great solution for ongoing expenses. Some business owners also like having the line of credit in case of unexpected expenses.
Can I get a business line of credit with bad credit?
In some cases, you can qualify for a business line of credit with poor credit. To do so, you will need to have strong business revenues and extensive business history, as well as a low amount of existing debt. It also helps if you have an existing relationship with your lender.
Can you use a business line of credit for personal expenses?
You should not use a small business line of credit for personal expenses. Not only would you be putting your business at risk, but you would also be risking your relationship with your lender and potential future funding. For personal expenses, there are other options, like personal loans, that you can use instead.
Does the SBA offer lines of credit?
The SBA does offer a line of credit, referred to as an SBA CAPline. It isn’t issued directly by the SBA; instead, approved lenders issue the business credit line and the SBA will guarantee a portion of it. Rates for an SBA CAPline range from 7% to 12% with limits as high as $5 million.
Does a business line of credit affect personal credit scores?
Most lenders will check your personal credit score when approving you for a line of credit, which can have an effect on your credit score. Additionally, in the event of default, the personal guarantee that you provide to lenders may allow them to report the failure of payment on your personal credit report.
Bottom Line: How to Get a Business Line of Credit
Whether your business needs financing for payroll or regular maintenance, a business line of credit can be a great option. When applying, you should have the required information ready and selected a lender where you are likely to get approved for the terms and rates you need.
The best line of credit terms are offered by BlueVine. You can qualify for up to $250,000 with weekly or monthly payments over the course of a year. Interest rates start at just 4.8% and their application can be completed in just 15 minutes, with funding as soon as the next day.