Business Line of Credit: A Primer for Small Business Owners

Natalie Mootz
Last Updated on January 29, 2020
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What’s a Business Line of Credit?

When you own a small business or run a startup, it’s possible to run short of cash from time to time. One popular method of financing is called a business line of credit, sometimes abbreviated as BLOC.

Businesses can use lines of credit for just about anything, including to:

  • Scale up staffing
  • Cover accounts payable
  • Renew equipment leases
  • Purchase inventory
  • Pay for marketing and PR

Requirements to Get a Business Line of Credit

The qualification criteria for business lines of credit vary from lender to lender. However, there is a general set of requirements that one can expect when applying for a line of credit.

There are two common requirements you need to meet to qualify for a BLOC: a) a specified minimum time in business (usually 6 months) and b) a specified minimum in annual revenue (relative to the sum you’re asking for).

Lenders may review your:

  • Credit score
  • Personal tax returns
  • Business tax returns
  • Financial statements
  • Balance sheets
  • Profit & loss statements

Some lenders may also require collateral when you apply for a large sum of money.

How Is a Business Line of Credit Different From Other Loans?

You’re probably already familiar with credit cards and loans. A business line of credit like a hybrid of these two lending products, as we show here:

Business Line of Credit Term Loan Credit Card
Borrowing Limit $1,000 to $250,000 $250,000+ Less than $250,000
Application Process Minimal to Moderate Detailed Minimal
Payments Pay as you owe Fixed Required minimum monthly

With a BLOC, you usually only pay interest on the amount of credit you’ve used. There’s also often a percentage-based draw fee charged whenever a portion of the credit line is used.

Collateral isn’t usually required on unsecured BLOCs at lower amounts.

Features to Compare

Your first time applying for a BLOC can feel a bit intimidating, but in reality, it’s pretty easy. If you’ve ever had a credit card or a car loan, you’ll recognize these terms.

  • Minimum Credit Score to Qualify – Credit scores are required by most banks and for most loan products.
  • APR – Annual percentage rate is the interest you’ll need to pay on your credit balance.
  • Speed of Funding – How quickly you can get access to your BLOC.

Business Lines of Credit Providers

Here’s a quick overview of popular business line of credit accounts that are geared to startups and small- to medium-sized businesses.

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Kabbage business line of credit

Kabbage

Kabbage specializes in business lines of credit. They’ve issued over $7 billion in credit to 185,000+ small businesses in the US.

To qualify, at minimum, your business needs to be earning $50,000 in annual revenue and needs to have been under your ownership for at least a year. There’s no application fee. They do charge a monthly fee.

Kabbage offer BLOCs up to $250,000.

 

US Business Funding home page

US Business Funding

US Business Funding specializes in offering equipment leases and working capital up to $10,000,000.

Their rates for BLOCs start at 3.50% APR and they lend for amounts $10,000 and up. Once you’re approved, it takes 24 hours to fund your credit line.

 

Bluevine home page

BlueVine

BlueVine has loaned out over $2 billion in business funds since they were founded in 2013, predominantly lending to small businesses. Their APR interest rates start at 4.8% and there are no monthly fees of any kind.

To get a BLOC with BlueVine, you’ll need a 600+ FICO score and at least 6 months of business operations with $100,000 in revenue.

You’ll have an approval or rejection in about five minutes. If you opt to pay for a $15 wire transaction, your funds will be available within a few hours.

BlueVine’s credit lines max out at $250,000.

 

Fundbox home page

Fundbox

Fundbox is a US-based financial firm that offers lines of credit up to $100,000. Your credit line can be approved in about three minutes and will be ready for spending the following day. You can apply online and you don’t need to give your credit score.

You’ll be more likely to be approved if you already have a business checking account with at least two months of transactions and $50,000 in revenue.

One drawback of Fundbox is that you’ll need to pay a weekly fee as you repay what you’ve borrowed.

 

Lendio business line of credit

Lendio

Lendio is an online bank headquartered in Utah. They’ve supplied small businesses with $1.4 billion since 2011. Lendio helps small businesses globally, donating to low-income businesses for every BLOC they issue.

Business lines of credit at Lendio start at $1,000 and max out at $500,000. You can have access to your funds almost instantly via apps or your browser.

Minimum requirements for a Lendio BLOC are: 1 year of business ownership, credit score of 600+, and annual revenues of at least $100,000.

One drawback is that Lendio’s lowest interest rate is 13.99% APR.

 

OnDeck business line of credit

OnDeck

OnDeck is an online lender that specializes in getting working capital to small businesses. They’ve loaned $3 billion dollars since their inception in 2007.

OnDeck’s business lines of credit start at $6,000 and max out at $100,000. Their interest rates start at 13.99% APR. Once you’re approved you get your funds instantly via their portal.

To apply, you’ll need to provide your business tax ID and three months of business banking statements.

One drawback is that OnDeck charges an origination fee. However, if you withdraw $5,000 within 5 days, the fee is waived.

 

StreetShares business line of credit

StreetShares

StreetShares, an online banking platform, was founded in 2013 by two military veterans. They’ve funded over $100,000,000 for American small businesses.

BLOCs from StreetShares are funded starting at $5,000 and going up to $250,000. You can apply online or over the phone.

StreetShares requires a minimum FICO credit score of 700. To apply, you’ll need to provide monthly bank statements and tax returns. They don’t require an application fee.

One drawback of StreetShares is they don’t provide a mobile app to manage your funds.

 

Wells Fargo business line of credit

Wells Fargo

Wells Fargo has been in banking since 1852, headquartered in San Francisco. They rake in $24 billion in net income per year so you know you’re dealing with a stable company.

Wells Fargo offers business lines of credit that are free of fees for the first year. BLOCs have APR rates starting at 7.00%. Better terms can be found for businesses with over $2 million in sales annually.

Wells Fargo doesn’t make any claims about how quickly your line of credit will be approved or how soon you can access your funding.

 

Bank of America business line of credit

 

Bank of America

Bank of America’s history goes back 240 years and they boast 66 million clients in 35 countries. Their unsecured business lines of credit run from $10,000 to $100,000 with interest rates starting at 7.00%.

To qualify for a BLOC you’ll need a FICO credit score of 670+, two years of business ownership, and $100,000 in revenue. You’ll also need to pass a phone interview.

You can access your credit line in about 10 days after approval.

One drawback is that Bank of America charges a $50 origination fee for setting up your BLOC.

 

Chase business line of credit

Chase Bank

Chase Bank, headquartered in New York City, has been around since 1877 and they claim assets of $2.49 trillion.

Chase offers business lines of credit up to half a million dollars. You have to pay an annual fee but it’s waived if you average using 40% or more of you credit.

You can pick the date you pay your monthly installments. Unfortunately, Chase doesn’t make public its APY interest rates or qualification requirements. You need to go to a brick-and-mortar branch to apply.

One drawback is that Chase BLOCs terminate after five years, at which point you’ll have to reapply.

What Are the Alternatives to a Business Line of Credit?

Alternative forms of financing for small businesses include:

  • Invoice factoring: A third-party purchases your unpaid invoices for cash and a fee.
  • Merchant cash advances: A financing company provides you with cash in exchange for a portion of your business’ future earnings plus a fee. Both merchant cash advances and invoice factoring are fast options.
  • Loans: These include SBA loans, term loans, and traditional bank loans. Monthly repayments are standard. In addition to interest rates there may be application fees, and origination fees.
  • Business credit cards: A business credit card allows you to spend money instantly, usually with higher interest. Business owners may be held liable personally for any debt incurred.

Additionally, crowdfunding and specialized grants are worth looking into.

Frequently Asked Questions

Business lines of credit can become confusing if you’re new to the concept, even if you’ve come across it before. Here are a handful of questions to clarify some of the most common contexts of confusion.

How do I get a line of credit for my business?

To get a line of credit for your business, contact a lender and submit an inquiry for your desired sum. The lender will present you with a set of requirements that you must fulfill in order to proceed with your line of credit application. Once your application is complete, the lender will credit you the funds within the agreed timeframe.

What are the requirements for a business line of credit?

The requirements for obtaining a business line of credit vary considerably between lenders. Most lenders require companies to have conducted business for at least 6 months, and to have a minimum average monthly revenue, and a set minimum credit score. Lenders typically require financial statements, business bank statements, business tax returns, and in some cases, personal tax returns.

How is interest calculated on a line of credit?

Typically, with a line of credit, there is no interest charged on unspent money. You usually only pay interest on the money you’ve spent. The downside, however, is that the interest rates on lines of credit are higher than many other loan types. That said, online lenders have a variety of ways that they calculate interest rates and other fees.

What is the best business line of credit?

The best business line of credit for your business depends on your company’s needs at the time of applying. For instance, if you’re in need of funds to improve your cash flow, interest rates will be a key determinant of choosing the right BLOC. Other important factors include lenders’ requirements, payment speed, and minimum credit score requirements.

What is the maximum line of credit you can get?

The maximum amount you can get through a line of credit depends on your company’s financial performance and history, primarily your annual revenue, and time in business. Should you meet all other qualification criteria, you will be able to get the maximum credit line (credit limit), which in Bluevine’s case is $250,000.

How long does it take to get a line of credit approved?

Lines of credit can be approved in a matter of a few minutes from the time of having submitted your application. One of the biggest advantages of a line of credit for businesses is fast approval time. Due to the fairly standard qualification criteria, the lending organization can very quickly determine the eligibility of the applicant business.

What is an unsecured business line of credit?

An unsecured business line of credit is one that requires no collateral. By contrast, high-dollar lines of credit are more likely to require collateral. That collateral may be in the form of real estate, a savings account, or equipment. Whether or not collateral is required for your line of credit will depend on your business’s revenue and credit score.

What is a secured line of credit?

A secured line of credit requires that the applicant pledge collateral (such as real estate or cash in a savings account) to guarantee the loan. Typically, high-dollar lines of credit are likelier to be secured lines. Whether you are required to pledge collateral is dependent on a variety of factors including your credit history and your current debt schedule.

Can you use a business line of credit for personal use?

No, you cannot use a business line of credit for personal expenditures. To do so is to risk violating tax law. Additionally, a court of law can void any liability protection you may have (say, under an LLC), if you have mixed your business and personal finances. This legal action is called “piercing the corporate veil.”

How does a line of credit affect your credit score?

The lender, when assessing your application, may do a hard credit pull, which can negatively impact your score. Request a “soft pull” instead. Late payments can negatively impact your score, as can a high debt utilization ratio. Carrying a variety of debt, such as a line of credit and installment loan, can help your score.

Is it better to get a loan or a line of credit?

Generally, loans are used for longer-term investments and larger purchases (like equipment and buildings), and lines of credit are used for short-term cash needs and emergencies. There are exceptions. For example, you can get a short-term business loan for working capital. Consider your goals, fees, and repayment terms when choosing between a loan and a LOC.

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