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Business Line of Credit: Compare the Best Options

What is a business line of credit?

Alrighty so, a business line of credit allows you to borrow up to a certain limit and only pay interest on the money you borrow — similar to the way a credit card works. You then repay the funds and can continue to draw on the line.

(psss it may be a little difficult to apply for and get approve, i’ll explain more)

Business lines of credit can be used for a variety of short-term needs, such as managing cash flow, buying inventory or covering payroll.

With a line of credit, you receive access to a set amount of capital — say, $150,000 — and can draw funds as needed. You only pay interest on the funds that you draw. You then repay the funds over time, typically on a weekly or monthly schedule.

You can continue to draw on your business credit line as often as you’d like, as long as you make payments on time and don’t exceed your credit limit.

Below, learn more about how business lines of credit work and compare some of the best options from online and bank lenders.

Here are 5 business lines of credit to consider exploring

Starting with #1

The American Express® Business Line of Credit is a good option for business owners with fair credit who want access to working capital.

Qualifications

• Minimum FICO score of at least 660 at the time of application.

• Must have started your business at least a year ago.

• Average monthly revenue of at least $3,000.

• All businesses are unique and are subject to approval and review.

• The required FICO score may be higher based on your relationship with American Express, credit history, and other factors

Wells Fargo Business Line of Credit

This Wells Fargo line of credit offers competitive rates for businesses with at least two years in operation.

Qualifications

• Minimum FICO score of at least 680 at the time of application.

• Must have started your business at least 2 years ago.

Chase Business Line of Credit

Chase line of credit offers competitive rates for businesses with at least two years in operation. As of today Dec 28th, 2023. Chase offers no docs business line of credit approvals of up to $100k (prime + 2.25%) results may vary dependent on branch location, relationship manager and history with Chase.

Qualifications

• Minimum FICO score of at least 680 at the time of application.

• Must have started your business at least 2 years ago.

• Optional but recommended to have current relationship with this bank

Bank of America Cash Secured Line of Credit

Bank of America’s Cash Secured line of credit can help startups cover working capital needs and establish business credit.

Qualifications:

• Minimum time in business: Six months.

• Minimum credit score: 670

• Minimum annual revenue: $50,000 per year

• Bank of America checking or savings account required.

• Minimum deposit of $1,000.

Bluevine - Line of credit

Note: Fastest funding option compare to other institutions consider that it’s online and a 3rd party connecter.

Bluevine's line of credit provides fast working capital for short-term borrowing needs.

Qualifications:

• Minimum credit score: 625.

• Minimum time in business: 24 months.

• Minimum annual revenue: $480,000

• No bankruptcies in the past three years.

Well that is it for your top 5 picks!

How does a business line of credit work?

Business lines of credit are available from banks, credit unions and online lenders. Although funding amounts and repayment terms vary, lines of credit typically have lower maximums and shorter terms compared to traditional business term loans.

Business line of credit rates and fees

Business line of credit rates can range from 10% to 99% APR. The interest rate you receive will vary based on your lender, credit score, financial history and time in business, among other factors.

In general, the stronger your credentials, the lower interest rates you’ll receive. Banks tend to offer more competitive business line of credit rates compared to online lenders.

Depending on your lender, you may also have to pay fees on your line of credit, such as:

• Origination fee: Fee charged to process your application.

• Account maintenance fee: Monthly or annual fee associated with managing your account and keeping your business line of credit active.

• Draw fee: Fee charged each time you draw on your credit line.

• Inactivity fee: A lender may charge this fee if you don’t draw from your line of credit within a specified period of time.

Secured vs. unsecured business lines of credit

A secured business line of credit requires you to put up assets such as inventory or property as collateral. If you fail to pay back the credit line, your lender could seize your assets.

Unsecured business lines of credit, on the other hand, don’t require collateral, but some lenders may still require a personal guarantee or a lien on your business’s assets.

A personal guarantee gives a lender the right to go after your personal assets, like your house, if you default on a loan. A UCC lien is similar; a lender can seize your business assets if you haven’t repaid a loan.

When comparing lenders, ask whether they require collateral, a personal guarantee or a lien so that you can find the option that’s best for your business.

Business line of credit vs. credit card

Business credit cards are technically lines of credit, but they differ from traditional business lines of credit in several ways:

Overall, business credit cards tend to work best for smaller ongoing expenses and for newer businesses without established finances, while business lines of credit work best for larger ongoing expenses and more mature businesses.

How to get a business line of credit

To get a business line of credit, you can follow these steps:

1. Evaluate your financing needs

You’ll initially want to determine why you need funding and how quickly you need it. If you’re looking for a working capital line of credit to cover payroll, for example, you may need financing as quickly as possible. On the other hand, if you want to keep a line of credit in your back pocket as an emergency fund, you may not be in such a rush.

It's also important to determine how much capital you can afford. You can use a business line of credit calculator to estimate potential payments and interest costs.

2. Review business line of credit requirements

Next, you'll want to evaluate your business's credentials — time in business, annual revenue, personal credit score — to determine what lines of credit you can qualify for.

Traditional lenders, like banks and credit unions, will likely have stricter qualifications, requiring multiple years in business and a strong credit history. Online lenders can be more lenient and some may be willing to work with startups and/or borrowers with bad credit.

At a minimum, therefore, you’ll want to be able to meet these business line of credit requirements:

• Credit score: 600 or higher.

• Time in business. Six months or more.

• Annual revenue. $50,000 or more.

If you’re looking for a secured business line of credit, you should also make sure you know what assets you’re going to put up as collateral and how much they’re worth.

3. Research and compare lenders

Once you have a better understanding of your financing needs and qualifications, you can research and compare small-business lenders to find the right option for your company.

Ultimately, you can apply for a business line of credit through a bank, credit union, online lender, or even work with an online marketplace to submit a single application and compare offers from multiple lenders at the same time.

Interest rates, borrowing limits and qualifications can vary by lender.

4. Gather required documents and apply

As part of your application, lenders will typically consider your credit and financial history — and ask you to provide documentation, such as:

• Personal and business tax returns.

• Personal and business bank statements.

• Business financial statements (e.g., profit and loss statement or a balance sheet).

You may also be required to provide physical collateral or sign a personal guarantee.

Depending on your lender, it may take anywhere from 24 hours to several weeks to complete the application and underwriting process.

5. Review your loan agreement and get funds

Once you’ve been approved, your lender will send you a business line of credit agreement to review and sign. You’ll want to review it thoroughly to make sure you understand all of the terms and conditions.

You might ask a business advisor or attorney to look over the document as well. If you have any questions or concerns, you should reach out to your lender for clarification before signing.

After you’ve signed the loan agreement, you’ll be able to draw on your credit line as needed. Your lender may require you to make a minimum draw amount, $1,000, for example, so keep this in mind as you anticipate your financial needs.