How to Get a Business Credit Line: Essential Guide for Small Businesses

Jordan Brooks

Jordan Brooks

— 2 min read
A close-up of hands holding an open wallet revealing credit cards

```html

Estimated Reading Time

8 minutes

Key Takeaways

  • Business credit lines offer flexible financing for small business owners.
  • Knowing whether a credit line is secured or unsecured is crucial.
  • Proper preparation is key to obtaining a line of credit.

Table of Contents

What Are Business Lines of Credit?

A business line of credit works much the same way, revolving in nature, just like a credit card, but typically with higher limits and lower interest rates. Unlike a loan, which pays out the full amount and is repaid over time, a line of credit is available at all times for lenders to draw and pay back at will, up to a certain maximum amount.

Lines of credit can be secured or unsecured:

  • Secured Business Line of Credit: Requires some collateral — for example accounts receivable or inventory — which often means higher credit limits and better interest rates.
  • Unsecured Business Line of Credit: Requires strong credit, but does not require collateral; typically comes with lower spending limits and higher interest rates.

Types of Business Lines of Credit

  • Small Business Line of Credit: Designed for established business owners with revenue history; you can generally secure a higher credit limit.
  • New Business Credit Lines: A perfect fit for the startup company. New business credit lines may have stricter requirements and may require a personal guarantee because the business does not have a history of operation.

How to Apply for a Business Line of Credit

Step-by-Step Application Guide:

  • Evaluate Business Needs: Consider the amount of credit you need.
  • Check Credit Scores – Business and Personal: Both personal and business scores.
  • Gather Your Documents: Get together bank statements, tax returns, and the like.
  • Shop around for lenders: Research banks, credit unions and online lenders.
  • Apply: Ensure all documents are received.
  • Terms of Offer Review: Once it is approved, review the offer being made.

Qualifying for a Business Line of Credit

To be eligible, lenders will consider:

  • Your personal credit scores (in most cases)
  • Business history and track record
  • Annual Revenue
  • Industry risk and business stability

A stronger financial position means a greater likelihood of approval and more favorable credit terms. A comprehensive preparation strengthens your application.

Tips to Get Approved:

  • Keep your credit in good shape by paying off debt on time
  • Keep your financial records up to date and organized
  • Limit outstanding liabilities
  • Demonstrate a history of stable revenue patterns

Comparing Business Line of Credit Options

Compare options to uncover the best business credit line:

  • Interest Rates: Fixed and variable rates
  • Fees: Evaluate origination, annual, draw and late fees
  • Repayment Terms: Determine lengthiness and leniency
  • Credit Limits and Renewals: Review maximums and terms on augmenting limits

Understanding Terms and Conditions

Knowing these terms can help you make a smart decision:

  • Draw Period: When funds are available to you.
  • The Plan to Re-Pay: The length of time for repayment of the borrowed funds.
  • APR (Annual Percentage Rate): Total borrowing cost expressed as an interest rate for a particular loan.
  • Revolving Credit: Keep borrowing up to the credit limit.

Alternative Financing Options

Aside from business lines of credit, consider other options:

  • Small Business Loans: For planned big-ticket expenses.
  • Lines of Credit: Ideal for operational needs or unforeseen expenses.
  • Fast Business Lines of Credit: Fast online solutions for emergency needs, but with higher rates frequently.

FAQ

```

Read more