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- A business line of credit gives owners flexible, on-demand access to capital for cash-flow gaps and growth.
- Banks make credit lines slow and painful; modern lenders offer faster approvals with fewer hoops.
- Most borrowers qualify with 680+ credit, 1 year in business, and $300K+ annual revenue.
- You only pay interest on what you draw—making credit lines far cheaper than MCAs or high-interest loans.
- LineOfCreditDepot.com matches you with the right lender so you avoid declines, wasted time, and multiple hard pulls.
A business line of credit facility is a powerful way for a business to access credit on an ‘as needed basis’. Running a small business without access to credit can stifle growth and impede the ability for the business to sell more products or services. In business ‘cash flow’ is king, and a line of credit is a flexible credit resource to help a business ebb the highs and lows of cash flow fluctuations.
A common pain point small businesses encounter is their need to cover business expenses, but can’t since they are waiting on outstanding invoices to be paid. Access to a business line of credit would help bridge this ‘timing gap’, where the business could access funds now to continue to pay for operations, and then can quickly pay the debt back, once the receivables are collected.
Business lines of credit give businesses the power to seize opportunities. A business line of credit could be greatly beneficial if the business ever identified an opportunity to drive more revenues, but lacked the available cash. The ability for a small business to seize opportunities, coupled with the cash flow security makes a revolving business line a credit a powerful credit product. Each lender has different program requirements, so us here at LineOfCreditDepot.com have streamlined the process to empower entrepreneurs to find the right business line of credit, from the right lender.
Unlike Line of Credit Depot: Getting a line of credit from your bank can be a slow, painful process filled with tons of paperwork and uncertainty. This is the path most business owners initially take when searching for a credit facility, since it’s logical to assume the bank already has an ‘understanding’ of the business because of the historical bank account activity. This in reality is not a main determining factor for an approval for a line of credit from your bank. The process, more often then not will result in a decline and credit card offers.
This guide will walk you through everything you need to know and show you a modern, streamlined way to get a business line of credit. Since each lender has different requirements for business lines of credit, Line of Credit Depot works with many different lenders throughout the country to provide businesses with a variety of line of credit options.
What is a Business Line of Credit & How Does it Work?
What is a Business Line of Credit
A Business Line of Credit is a revolving credit facility for a business. The line of credit can be borrowed from as needed, whenever the business needs access to cash. A business line of credit offers ongoing access to funds whenever needed, which gives business owners financial flexibility without being constrained by cash shortages.
How does a Business Line of Credit Work?
A Business Line of Credit follows a simple draw, repay, and repeat cycle. You can borrow funds as needed, make payments over time that cover interest and principal (sometimes interest only), and then access your available credit again-without having to reapply. Similar to a credit card, A credit line works on a revolving basis, where as principal is paid back, the available credit is replenished. Most lines of credit have a maximum limit, where you can’t owe more than this limit at any time. Similar to a credit card, you are only paying interest on the funds that are actually drawn from the line, not the entire facility.
Line of Credit vs. Business Loan: Which is Better?
When exploring whether a line of credit or business loan is better, applicants should consider what the funding will be used for and the nature of the need. Essentially, the solution that satisfies the need more appropriately would be considered better.
Loans are traditionally better for financing one time purchases. Single transactions or one off projects, like equipment, renovations, or real estate would warrant a loan product. Since the loan would finance the single transaction and the borrower would pay down over time.
A Line of Credit is best for ongoing needs of a business, such as: inventory, working capital, cash flow gaps and unexpected costs. Given the draw and payback cycle of a credit line, this could mean that you would be able to access more money over time with a line of credit, than a singular loan.
Most businesses benefit from the flexibility of a line of credit for day-to-day operations.
How to Get & Qualify for a Business Line of Credit
The approval process and minimum qualifications for a line of credit facility vary considerably from lender to lender. With Line of Credit Depot’s wide network of lenders, we know each lender’s minimum qualifications and underwriting criteria, this is why applying with us will save you guesswork and time in searching for the right lender.
What are the requirements for a Business Line of Credit
The minimum requirements for a Business Line of Credit are broken down here:
-Personal Credit Score: a Personal FICO score of 680 is the general minimal allowed score, with applicants over 700 receiving the best rates and approvals. Credit will be considered for any owner with 10% or more ownership in the company.
-Time in Business: A business must be 1 year in business to be considered for a business line of credit.
-Annual Revenue: Minimum annual gross sales is $300,000. This should be shown on the last filed business tax return.
-Industry: Companies in the transportation and hospitality industries will generally face more underwriting scrutiny than other industries. This varies from lender to lender.
-Collateral: Lines of Credit under $250,000 are considered unsecured. This means there is no hard collateral (real estate) that is pledged as collateral. A secured line of credit would have real estate or other collateral pledged. Secured Lines of Credit are $250,000 and above.
How to Apply for a Business Line of Credit
The unguided route, would garner the least desired results and would require you to apply to many banks simultaneously. Without knowing the nuances of each lender means that your credit would be run many times while applying to many different lenders. This would be a time intensive search, that may not result in any approvals.
The alternative would be the guided route, where an applicant can leverage Line of Credit Depot’s industry experience and lender database to find the best line of credit option for their business.
- Apply Once with Line of Credit Depot.
- We do the work to match your file with a lender that is already looking for businesses like yours.
- Get offers or updates within 1-2 days
- There is no application fee and zero commitment to apply
How to Get a Line of Credit for a New Business or with Bad Credit
New businesses can get a revolving line of credit, but minimum time in business is 1 year. 2 years in business will see larger approvals and more favorable terms. If your credit is under 680, there are still programs that exist to help capitalize the business.
Types of Business Lines of Credit
There are 3 distinct types of credit lines that Line of Credit Depot offer small businesses.
Conventional Lines of Credit
Conventional lines of credit are issued and serviced by a bank and are not guaranteed by the SBA, which means the bank is taking all the risk. Therefore only the most credit worthy businesses can access these programs. Conventional lines of credit usually have the lowest interest rates and are quicker to set-up, compared to SBA Lines of Credit.
SBA Lines of Credit
SBA Lines of Credit are issued by a bank, but the credit is guaranteed by the SBA. The credit line is still funded and serviced by the bank. This type of approval would occur if the bank underwriting declines a file for conventional approval. Since the line is SBA insured, if the borrower was to default, the SBA would cover a portion of the principle. This limit’s the bank’s exposure, so they are able to approve applicants that wouldn’t necessarily be approved for conventional.
Fintech
Credit lines can be issued from banks through financial technology companies. This makes the underwriting process quicker than traditional banks. With accelerated underwriting, these lines can be activated in days. The costs are usually more expensive than traditional bank lines of credit, due to third party providers.
Understanding the Costs & Financial Impact
How Much Business Line of Credit Can I Get?
Lines typically range from $25,000 to $500,000. Our platform can also help businesses obtain multiple lines from different banks. The approval amount is determined based on the business last annual gross sales and the profitability of the business. Even with reported losses, businesses can still be approved for a line of credit.
What Does a Business Line of Credit Cost
Interest Rate: The best advantage of a Line of Credit is the carry costs. 0% to 3% above prime rate (WSJPR) is the most affordable unsecured working capital program for small businesses. This is wildly cheaper than a high-interest term loan or MCA (Merchant Cash Advance).
Fees: There are no application fees to apply for a line of credit. SBA fees and standard bank fees do exist once the line is activated. A one time activation fee is charged if an offer is accepted. Often times these fees are financed by the proceeds of an initial line draw.
Does a Business Line of Credit Affect My Personal Credit?
A business line of credit is not reported to personal credit bureaus, so it will not affect a business owner’s personal credit. Line of Credit Depot does not perform a hard inquiry during initial underwriting, but some banks do require an initial hard credit inquiry. Some business lines of credit are reported to business credit bureaus like Dun & Bradstreet.
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How to Use & Manage Your Line of Credit
What Can I Use a Business Line of Credit For? -Manage cash flow gaps: As your business waits on receivables to come in, a line can be drawn from to cover regular business expenses and then paid back when receivables are received.
-Pay for unexpected repairs and bills: Large bills that need to be paid can drain cash reserves, so a line of credit can be a safety net for when money is needed to pay for emergencies.
-Buy Inventory: By having access to a credit line, credit can be leveraged to purchase inventory for when buying opportunities arrive.
-Fund a Marketing Campaign: By using a credit line to pay for marketing and advertising, upfront costs aren’t felt by the business and the borrowed money can be paid back from sales generated.
-Hire New Staff: Payroll expenses are often the most expensive part of running a business, but employees or contractors can increase income for the business. By helping to pay for a upfront hiring costs, businesses can quickly hire.
How to Use Your Line of Credit Effectively
Lines of credit are utilized for short-term, revenue-generating needs, not for holding long-term debt. When your business needs to borrow from the credit line, you can choose the amount of the draw and this money will be transferred from the credit line into the business operations checking account.
Payments are scheduled monthly (sometimes weekly). These minimum payments are sometimes interest only, which means that the principle is not being paid down. Similar to credit card debt, just paying the minimum payments means that the available credit is not replenished, which affects future draw availability. Therefore it’s important to pay off the principle as quickly as possible to avoid paying extended interest on the outstanding debt.
By paying down the balance regularly, the maximum available credit can be available for when the business needs to draw in the future.
Line of Credit Frequently Asked Questions
A business line of credit is essential for growth and stability. While traditional banks make it difficult, and other lenders charge high rates, Line of Credit Depot gives you the best of both worlds: low bank rates with a fast, simple process.
Q: How long does it take to get approved?
A: With us, pre-approval takes hours, and you can have guaranteed offers in 1-2 days.
Q: What banks do you work with?
A: We have a network of 60+ vetted national and community banks. We match you with the one that best fits your needs.
Q: How hard is it really to get a business line of credit?
A: It's hard if you go it alone. We simplify the process, dramatically increasing your approval odds by matching you with the right lender.
Q: Can I get a line of credit for my LLC?
A: Yes, we help all legal business entities, including LLCs, S-Corps, Sole Proprietorships and C-Corps.
