Small businesses are the backbone of the American economy, and a business line of credit can be the difference between success and failure. A credit line can provide much-needed cash flow during tough times, or help you expand your business when opportunities arise. In this article, we’ll discuss how to get a small business loan (line of credit), including how they work, and their benefits.
What Is a Small Business Line of Credit?
It’s one of the more flexible small business financing options. It can be used to cover business expenses, such as inventory, marketing, or unexpected costs. Lines of credit typically have lower interest rates than other types of financing, making them an attractive option for most business owners.
How Does an Unsecured Business Line of Credit Work?
This type of financing allows you to borrow money without putting up any collateral. With an unsecured credit line, you’ll typically pay interest on the money you borrow, but you won’t have to worry about losing your home or other assets if you can’t repay the loan.
Benefits of a Small Business Line of Credit
A business line of credit can provide many benefits to business owners. Below we’ll list just five of them:
- Cover unexpected expenses. A line of credit can give your business the financial ability to adapt and cover unexpected costs, such as a sudden drop in sales or an unplanned repair.
- Take advantage of opportunities. With a business credit line, you’ll have the working capital available to take advantage of opportunities as they arise. This could include expanding your business or taking on a new project.
- Manage cash flow. Business lines of credit can help you manage your cash flow by giving you access to funds when you need them. This can be especially helpful during slow periods or when you’re waiting on invoices to be paid.
- Lower interest rates. Business lines of credit typically have lower rates of interest than other types of financing, making them more affordable in the long run.
- Flexibility. Business lines of credit offer the flexibility to only borrow the amount you need, when you need it. You’ll also have the flexibility to repay the loan over time, making it easier to manage your working capital.
How Do You Qualify for Small Business Lines of Credit?
Qualifying for a credit business line will vary depending on the lender, but there are some general requirements that most offline and online lenders will look for. Here are five criteria to qualify for credit lines for your business.
- Personal credit score. Most lenders will look at your personal credit score to determine your eligibility for a secured business line of credit. A higher credit score will typically qualify you for a lower interest rate.
- Business revenue. Lenders will also want to see proof of your business’s revenue. This could include tax returns, statements from your business bank account, or financial projections.
- Time in business. The longer your business has been in operation, the more likely you are to qualify for a business line of credit. Lenders will want to see that you have a history of making on-time monthly payments and managing your finances well.
- Collateral. While not required, some lenders may ask for collateral to secure the loan. This could include business assets such as equipment or inventory.
- Business plan. Finally, lenders will likely want to see a business plan outlining your company’s goals and how you plan to use the funds from the business line of credit.
Top Lenders for Small Business Owners Seeking a Line of Credit
Below, we’ll take a look at the top online lenders of secured and unsecured business lines of credit. In case you missed it, Bank of America launches new credit card and line of credit for small business.
If you’ve been in business for at least six months and have a minimum credit score of 600, then Bluevine will give you a line of credit between $6,000 and $250,000.
2. Wells Fargo
To get a business line of credit of between $5,000 to $100,000 with no collateral required from Wells Fargo, you’ll need to be in business for two years. They don’t disclose what minimum credit score is required.
Qualifying for the financing of between $1,000 to $150,000 from Kabbage, You’ll need to be in business for at least one year and have a credit score of 640 or higher.
4. US Bank
US Bank will give you a line of credit up to $100,000 (unsecured) or $250,000 (secured) with a credit score of 680 and two years in business.
You can get a business line of credit from $6,000 to $100,000 through OnDeck if you have been in business for one year and have a 600 credit score.
6. TD Bank
Borrow up to $100,000 from this online lender with a credit score of 650+. The best part is that even new businesses qualify for business credit lines with this lender.
Credibly will provide you with up to $250,000 in financing as long as you have a credit score of 560 and have been in business for six months or more.
Get financing from $1,000 to $500,000 from Lendio with a credit score of only 560. Plus, your business only needs to be six months old to qualify.
9. SBG Funding
At SBG Funding, you can borrow up to $150,000 if you’ve been in business for at least six months and have a minimum credit score of only 500.
To get a line of credit of up to $150,000 from Fundbox, you’ll need a 600 credit score and your business has to be open for only six months minimum.
Line of Credit for Small Business Versus Business Credit Card
There are a few key differences between business credit cards and lines of credit (which are small business loans). Business credit cards are easier to qualify for, but they tend to have lower credit limits and higher rates of interest. Business loans are more difficult to qualify for, but they usually have lower interest rates and higher credit limits.
Is a Line of Credit a Good Idea for a Small Business?
Yes. It gives you the ability to borrow money when you need it, up to a certain limit, and then repay it over time. In general, a line of credit is a good option for a small business owner who needs access to cash but doesn’t want to take on debt.
What Credit Score Do You Need for a Business Line of Credit?
Most lenders require a minimum credit score of 680 in order to qualify. However, there are some lenders who are willing to accept scores as low as 580. A higher credit score indicates to lenders that you’re a lower-risk borrower and more likely to repay your debt on time and in full.
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