Loan Amount
Up to $500,000
Estimated Repayment Terms
6 months - 3 years
Interest Rate
Starting @ 8%
Speed of Funding
As fast as 1 day
What Is a Business Line of Credit?
A business line of credit is a method to sustain success when your business needs to establish consistent cash flow to pay employees, cover costs or invest in projects that will grow your company.
This type of financing gives your business a revolving line of credit, meaning you can spend and payback — as well as reuse — capital as needed.
Business lines of credit give you the capacity to handle emergencies and opportunities equally, offering the peace of mind and security you need to manage your cash flow best.
How Does a Business Line of Credit Work?
A business line of credit works similar to a credit card. The line can be used when needed and as you pay down your debt, your credit line is replenished, up to the original credit limit. The main features that make a small business line of credit attractive are purchase and payment flexibility.
Repayment terms generally fall within the 6-month to 3-year span, and credit limits are typically higher than their credit card counterpart.
Business Line of Credit vs. Credit Card
While a small business line of credit and a business credit card may seem similar, there are three distinct differences between the two.
1. Access to Working Capital
The best business line of credit lenders can provide you access to large sums of working capital. For example, through Fast Capital 360, you can obtain a line of credit up to $500,000.
While an online business line of credit can provide you with high limits, credit cards commonly only offer limits of $50,000. Also, it’s possible to receive a cash advance from your business credit card, but you’re typically charged a cash advance fee and a higher interest rate than you’d pay for purchases.
2. Repayment Schedules
While a business credit line is quite flexible, business credit cards provide more leeway when it comes to repayment schedules. There is no set repayment term for a credit card.
Small business lines of credit, on the other hand, come with a set end date. Borrowers will pay either weekly or monthly installments over the course of 6 months to 3 years.
3. Fees and Rewards
Business credit cards usually offer attractive rewards programs that lines of credit cannot. These card perks typically come with an annual fee which recoups the cost of these benefits for the provider. While small business lines of credit don’t feature any rewards programs, they don’t carry any annual fees.
The Different Types of Business Lines of Credit
There are two types of business lines of credit: secured and unsecured. Let’s compare and contrast each type to understand the difference.
Secured Business Lines of Credit
Secured business lines of credit require businesses to collateralize the credit line.
Collateral for a secured business line of credit is typically an asset which the lender can assume ownership of and liquidate to pay off the remaining balance in the event of default.
The most common assets used to secure a business credit line include:
- Real estate
- Personal or company vehicles
- Home equity
- Accounts receivable (e.g., unpaid invoices)
- Inventory
- Equipment
Unsecured Business Lines of Credit
Unsecured business lines of credit can be obtained without collateral. This means that in the event a business defaults on their credit line, the lender would have no pledged securities to leverage to recoup on losses.
However, lenders providing unsecured business lines of credit protect themselves by other means. This is done mostly by reducing credit limits, charging higher business line of credit rates, shortening terms and requiring a personal guarantee commitment.
Because of this, unsecured business lines of credit have their benefits and their drawbacks. On the upside, the application process is streamlined. Applicants seeking an instant business line of credit will be relieved to hear that often a decision can be made within hours and funds received as fast as the same day. On the downside, an unsecured business line of credit typically carries a higher overall cost than their secured counterparts.
How to Qualify for a Small Business Line of Credit
To qualify for an online business line of credit, your company must meet certain requirements regarding time in business, annual revenue and personal credit score.
For example, companies with less than 2 years in operation will most likely qualify for short-term unsecured business lines of credit. Businesses that have been around longer than two years are likely eligible for long-term lines of credit.
The more established your business and the stronger your credit is, the easier it will be to qualify for any program.
Do You Qualify?
Based on previously approved borrowers, you’re likely to qualify if:
- You’ve been in business 6+ months
- Your annual revenue is $160K+
- You have a credit score of 575+
How to Apply for a Business Line of Credit
If you want to apply for a business line of credit, you can go through a traditional bank or an online lender. Banks often have a lengthy vetting and application process before they’re willing to grant a commercial line of credit. In contrast, online lenders use more streamlined processes that can provide funds as soon as the same day.
What Will a Small Business Line of Credit Cost?
Depending on your creditworthiness, your estimated business line of credit interest rate can be as low as 6% or as high as 24%. There are multiple factors that affect final costs.
Your Credit History
Personal credit history helps lenders understand how effectively you manage and repay debt, allowing them to better assess your risk. If you’ve struggled with accounts in the past and are looking for a business line of credit for bad credit, Fast Capital 360 can help. You may qualify for a credit line if you have a credit score of 575 or better.
Loan Amount
The higher the credit line, the greater the risk for your lender. Greater risk equals higher interest rates.
Business Characteristics
Your business’s structure, industry and unique attributes can influence your risk, depending on how it affects your earning abilities.
In general, the amount you receive, combined with your unique business qualifications, will influence how much you pay to access the business line of credit.
Business Line of Credit Example
| Amount Borrowed: | $30,000 |
| Interest Rate: | 11% |
| Term: | 36 Months |
| Monthly Payment: | $982.16 |
| Total Repayment: | $35,357.81 |
| Cost of Loan: | $5,357.81 |
Ways to Use Your Small Business Line of Credit
Thinking of using a small business line of credit for your working capital needs?
Here are just a few examples of how you can use your funds to run and grow your business.
Inventory Financing
Business owners sometimes turn to a business line of credit to help cover inventory expenses during a slow season, or just to stock up on supplies in case of an emergency.
Equipment Funding
For business owners that need to purchase a new piece of equipment or are even looking to upgrade, a business line of credit can be used to finance that cost.
Working Capital
If a company is suffering from a slump, a business line of credit can help cover everyday operational costs.