How to Get a Business Line of Credit

Wondering how to get a business line of credit? It’s easier than one might think. 

Follow our step-by-step process on how to apply for a business line of credit and see what you need to get started. Keep in mind there’s no “standard” type of credit line: There are long-term, short-term, secured and unsecured credit lines with high or low interest rates. 

Find out which business line of credit works best for you before you apply.

How to Apply for a Business Line of Credit

Applying for a credit line takes a few steps. Here are ways to increase the odds when you’re wondering how to get approved for a business line of credit:

1. Check Your Credit Score

Your credit score is a crucial business line of credit qualification and is one of the few aspects of your application that can make or break your chances of success. One of the best ways to get a business line of credit with favorable terms is to have a strong credit score. 

Ideally, you’ll apply for a low-interest line of credit with a fair credit score or better (although some lenders will consider applications from applicants with bad credit). According to major credit-reporting agencies, FICO scores are used by 90% of lenders and correspond to the following categories:

• 300-579: Very Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very Good
• 800-850: Exceptional

As a rule, you should expect a higher annual percentage rate (APR) on your loan or credit line if you have a FICO score of 600 or less. Online lenders may be the best way of getting a business line of credit with bad credit or getting approved if you haven’t yet established a credit history.

2. Gather Your Documents

Once you’re ready to apply, you’ll need to collect various documents and pieces of identification that the lender will ask for on the business line of credit application form. 

Online application processes are relatively streamlined compared with banks or conventional lenders. There are crucial pieces of information many creditors seek, including:

• One form of a government-issued identification
• Tax returns
• Bank statements
• Cash-flow statements (i.e., balance sheet and profit-and-loss statements)
• Articles of incorporation

Although not all of these documents may be required by the lender you choose, it’s a good idea to cover all your bases and maximize the number of documents you collect during the pre-application phase.

3. File the Application

At this point, you’ve settled on the lender and gathered all the documents you need to get started submitting your business line of credit application form. All that’s left to do is go to your lender’s website and follow the application process.

If you’ve decided to apply for your business line of credit through a bank or credit union, you might need to schedule an appointment with their in-house loan officer.

In some cases, applying online can take minutes. Once the application is complete, you’ll be notified the lender has received your file and that it’s under review. From there, an algorithm will vet your application, check your business line of credit qualifications and send your file through an underwriting process.

With many nonbank lenders, you can expect to hear whether your application was approved within a day. If you’re applying through a bank or are filing for a secured loan, you can expect the turnaround time to be longer.

Why Choose a Business Line of Credit?

Business lines of credit are appealing to entrepreneurs and business owners in unpredictable, fast-paced business environments.

There are some advantages to choosing a credit line over a term loan, invoice financing or other financing methods. Here’s are some key benefits:

• They can be repaid and borrowed again
• They can be a valuable buffer to cover emergency expenses or a business opportunity
• They can help manage seasonal and industry-specific cash flow fluctuations
• They have lower interest rates than credit cards
• They offer a great middle ground between term loans and credit cards

Opening a business credit line is often the preferred choice among business owners who want a streamlined, no-nonsense borrowing solution.

Cash-Flow Management

Superior cash-flow management is one of the main selling points of business credit lines. 

Business lines of credit can help smooth out your cash flow during predictable economic downturns. For instance, a line of credit can help you purchase inventory when you need it most, instead of buying inventory far in advance and having to wait until business picks up again to purchase more.

Line of Credit Interest Rates and Tax Benefits

Although lines of credit won’t offer you the perks and marketing incentives that some credit cards do, they often come with lower APRs. You may find starting rates for lines of credit that hover just above the prime rate.

Credit lines tend to have high credit limits, and can come in handy if you’re looking to finance 5-or 6-figure expenses.

Potential applicants also should note that interest paid on a business line of credit used for legitimate business expenses generally is tax-deductible. Being able to write off interest can save you money every year on your tax returns. Consult your accountant or tax adviser for additional details. 

Should I Get a Business Loan or Line of Credit?

For short-term needs, credit lines are a sensible solution. Unlike term loans, they can be withdrawn from and repaid on an as-needed basis. 

Business Term Loans

Business term loans offer a lump-sum payment, the entirety of which is repaid with interest in regular installments. In certain agreements, you must pay a prepayment penalty if you pay off a loan in full before its amortization period.

A term loan can cover the cost of a fixed, one-time purchase. Term loans make the most sense in scenarios where you need to use the entire borrowed amount right away. After you’ve taken out a loan and repaid it, you need to apply again for additional funds. This can be a time-intensive method of borrowing compared to a business line of credit.

Business Lines of Credit

Think of getting a business line of credit as a revolving pool of capital that can be drawn from up to a predetermined limit. Credit lines operate similarly to credit cards in that they can be tapped from when necessary, paid off and then borrowed from again. As with a credit card, you only have to pay interest on the portion that you borrow.

Additionally, credit lines are among the best options for business owners that regularly find themselves having to pay off unexpected expenses. Unlike a term loan, the amount that you repay from the credit line is then made available to you again for future use.

What’s more, with a credit line, you don’t have to worry about continually reapplying and waiting through the vetting process every year or two.

Secured vs. Unsecured Lines of Credit

When you’re trying to figure out how to get a business line of credit and wondering which credit line is best for you, consider that there are secured and unsecured credit lines. 

Secured lines of credit require borrowers to collateralize the financing. Applicants pledge high-value assets, called collateral, to secure the loan against the risk of default. 

An unsecured line of credit line hasn’t been collateralized. To offset the risk of unsecured lending, creditors reduce credit limits and charge higher interest rates.

The benefit of unsecured lending is that the approval process tends to be much shorter than that of a secured loan and typically requires only a fraction of the necessary paperwork.

Where to Find the Best Online Business Lines of Credit

Conventional Lenders

If you’re an established business with a fair-to-excellent credit score, you’ll likely see the best interest rates and repayment terms with banks and credit unions. While the process to apply and get funded can take time, if you’re aren’t in a rush for funds and meet bank minimum requirements, you could save money and benefit from lower interest rates, higher line of credit limits and extended payment terms.

Online Lending Marketplaces

If you’re seeking quick access to funds, have a credit score in the 500s to low 600s and are looking for a hassle-free application, consider an online lending marketplace. With one easy-to-complete application on a lending marketplace you can be connected to multiple lenders.

This reduces the amount of time it takes to find a lender that meets your business’s needs and whose eligibility requirements you can satisfy. On top of that, many lending marketplaces offer resources to help business owners navigate the application process.

Direct Alternative Lenders

You could also apply directly with one online lender. Here are a few direct alternative lenders offering business lines of credit.

Getting the Best Line of Credit for Your Business

Successful business owners are experts when it comes to strategizing. They plan, calculate their next move and execute operating procedures to a T. However, every savvy business owner knows that sometimes expert planning isn’t enough. There are too many unexpected costs, surprise expenses, opportunities and contingencies that can throw a wrench in your plans.

It’s just as crucial to be flexible as it is to be strategic. This is where business lines of credit offer a hand. When you need to borrow capital to cover unforeseen costs, get through a cash crunch or jump at an opportunity, getting a line of credit for your business can prove critical.

If you’re asking yourself, “Should I get a business loan or line of credit?” keep in mind that business lines of credit are a flexible, accessible source of financing for startups and burgeoning enterprises alike. 

If you’re strapped for time and can’t wait around while banks and credit unions process your application, consider applying for an online business line of credit.

Get the capital you need without worrying about the status of your application. After all, the goal of any business financing is to allow you to focus on doing what you do best: Run your business.