When your cash flow doesn’t satisfy your business’s expenses, or you have a new opportunity, you need capital. It’s that simple.
Finding ways to get capital quickly and easily—instead of an exhausting process that takes forever—is key.
Having extra working capital on hand can be your business’s saving grace in countless situations. From expanding your location to buying new inventory and operating expenses, capital can be crucial for pushing your business to the next level.
If having cash on hand is so crucial, why should you have to take out small business loans every time you need it? That’s where business lines of credit come in.
Revolving lines of credit give your business access to a reservoir of funding, which they can draw from as they need to. Instead of being obligated to take (and pay back) a set amount, you can draw more as you need it from a corporate business line of credit. Lines of credit give you greater control over the amount of interest that you pay back, too.
Credit lines are helpful when your business is growing rapidly and unexpected expenses become the norm.
Benefits of a Business Line of Credit
Why should you get a line of credit over another funding option?
- Flexibility of funds
- Only pay interest on the amount drawn
- Ability to draw funds after you’ve repaid them
- Freedom in use of funding
Most business owners like the flexibility. It gives you a way to get cash that you can use for any business-related purpose. This includes long-term growth-related expenses like opening a new location, as well as sudden costs and even payroll.
Additionally, you’ll only pay for the funding you draw. Unlike other small business financing options, lines of credit aren’t a cut-and-dry solution. Even if you’re approved for $100K and only use $80K, you’ll be charged interest on $80K.
Best Place to Get A Business Line of Credit
Where can you get a business line of credit? Depending on the industry you’re in, how long your business has been around, and a few other factors, you have multiple options. However, all of these sources of capital will have different requirements and qualifications.
| Type of Lender | Description |
| Banks | Banks offer lines of credit, and if this is your first rodeo seeking financing, they’re probably the first place you’ll go. If you complete the application and the bank approves your offer, then it might be wise to take it.
You can start this process by contacting your business banker. However, before you begin the process, it’s important to bear in mind the lengthy application and the stiff qualifications. Business line of credit qualifications are normally as stiff as those for small business loans. |
| Credit Unions | Because credit unions are membership-based, you can only access funding if you’re officially a part of one. This includes a fee and will require you to regularly use your account. |
| Non-Bank Lenders | Non-bank (online) lenders offer business lines of credit as well. The application is far simpler, meaning you won’t have to take hours out of your day like you would with a bank, and funding times are faster. You simply apply online and complete the application by sending business documents or securely connecting your bank account.
Unlike banks, the requirements and qualifications are far less restrictive. The interest rates are typically higher – though the gap has closed in recent years – but you can potentially offset the higher cost of capital with your business opportunity. With approvals possible in as little as a few hours, non-bank lenders are a great option to seize immediate opportunities and grow your business on your schedule. |
How Do I Get a Business Line of Credit?
Getting a business line of credit isn’t difficult—as long as you go about the process the right way. If you’re in the market for financing, follow these steps.
1. Meet Relevant Qualifications
Wondering how to qualify for a business line of credit? There are several criteria you should meet. You won’t know with certainty whether or not you qualify until you apply, but you can start by looking into the qualifications beforehand.
- Credit Score – Generally, lenders will look at both your business and personal credit scores. This helps them to fully understand your business’s current financial situation, as well as your trustworthiness in repaying debts.
- Revenue – This number gives lenders a good picture of your cash flow. In other words, your revenue shows how much money is coming into your business and the amount you can afford to repay.
- Time in Business – Younger businesses with less of a track record tend to be riskier than older businesses—at least on paper. Banks take this requirement more seriously than other lenders, with a minimum of two years in business required. Through FinTech lenders, you can start qualifying for ideal financing programs after 3 months.
- Collateral – Collateral allows lenders to “secure” the loan or guarantee that they’ll receive payment in the event you can’t pay it back. Common examples of collateral include physical real estate, equipment, and other high-value assets.
2. Compare Your Options for Types of Business Lines of Credit
There are three ways that you can break down the various types of lines of credit: the source, whether or not it’s secured, and the length of the term. You can start this process by weighing the pros and cons of each type.
| Type | Description |
| Bank Vs. Credit Union Vs. FinTech | Banks tend to have the best rates, terms, and amounts. On the flip side, they’re the most difficult (and time-consuming) to qualify for. You may have to wait between several weeks and months to learn if you qualify.
Credit unions offer a similar structure, with one major caveat: you have to be a member to qualify. Additionally, getting access to your funds can be a hassle, especially if you plan to draw in increments. FinTech lines of credit are much easier to qualify for. You’ll provide limited documentation (generally only a few bank statements) and can receive funding in as little as 24 hours. You can even find bad credit business lines of credit. |
| Secured vs Unsecured Lines of Credit | Secured business lines of credit have collateral backing them, while unsecured options don’t.
Some lenders (especially banks) may require collateral or, at the very least, a personal guarantee. A personal guarantee doesn’t put forth any of your assets specifically, but it does mean that you’re personally liable if you default on the loan. Putting up collateral is a great way to potentially open the door for lower rates, but this changes depending on the lender. |
| Short Vs. Long-Term | This refers to the amount of time over which you’ll repay the lender.
Short-term lines of credit are generally paid back over the course of a year or less, while long-term programs are paid back over a longer period of time. If you’re using the funds to accomplish something that will drive revenue, then it may make sense to utilize a short-term line of credit. For expenses that don’t drive revenue, like facility improvements, a long-term line of credit might be the better way to go. |
3. Meet the Requirements and Prepare Your Paperwork
Once you have a solid idea of where your business stands, it’s time to start getting your application ready. This means preparing the required document(s). For some business owners, this may also mean taking the time to improve things before lenders dig deeper.
Generally, lenders will require some of the following information before approving your request:
- Personal information (like your name, social security number, and ID)
- Business information (like your business’s name, its entity type, your tax ID, and the industry you fall into)
- Credit scores (including personal and business)
- Financial information (like annual revenue, bank statements, and if you apply through a bank, balance sheets, profit/loss statements, and other documents)
- Tax returns (including personal and business)
- Any existing debts (through a debt schedule)
- Legal documents, especially those that bind you to any partners
4. Apply for a Business Line of Credit
Through banks and credit unions, you’ll have to make an in-person visit and complete the physical application. This may take several hours, and they could request additional documents or information later. Most fintech lenders have streamlined their applications by fully digitizing them.
When you receive an approval, you’ll want to check the following details to ensure they’re in line with your business:
- Amount: The full line of credit that you’re approved for (or the maximum amount available)
- Terms: The length of time over which you have to pay the loan
- Payment schedule: How often you’ll be required to make payments (daily payments have become increasingly popular)
- Rates: The percentage of interest you’ll pay (legitimate lenders only charge on the amount drawn, not the full approval)
- Fees: Other charges in addition to interest payments (be sure to clarify this with your lender)
How to Get Approved for a Business Line of Credit
Getting approved doesn’t have to be a shot in the dark—there are steps you can take to improve your chances of qualifying.
These are some of the ways that you can improve your chances of qualifying for a business line of credit.
- Follow Responsible Business Practices – When lenders look at your application, you don’t want to give them any reason to think twice. Make sure that you pay all your bills on time, including suppliers, utilities, rent, and outsourced services. Also, be careful not to overload your business credit cards, which could harm your credit score.
- Apply When You Don’t Have an Urgent Need – The best time to get a business line of credit is when your business does not need one. Banks will mostly be willing to come to your rescue when your cash flow is promising and you aren’t desperate for a loan. If you have an existing credit line, then you can draw from it at any time.
- Build and Maintain Good Business Credit – Having a strong business credit profile is essential, especially when you’re pursuing new opportunities. Pay your bills on time, ensure your financials are properly reported and tracked, and keep a low debt-to-credit ratio.
- Do Your Research – Don’t simply walk in blind. Instead, explore the options available and familiarize yourself with rates, terms, amounts, and more.
Business Line of Credit: Terms, Fees, and Rates You Should Know
If you’re getting a business line of credit, then it’s best to understand what you’ll be paying for. Specifically, how your interest payments will be structured and any other applicable fees.
Not all lenders will charge the same fees, but it’s important to ask your lender about any they may charge. Some of the fees you may encounter include:
- Draw fees may be charged every time you withdraw new funds from your revolving line of credit
- Payment processing fees may be charged to deliver your funds instantly, instead of a standard 1-2 day time window
- Late fees may be charged when you miss a standard payment
- Termination fees may be charged if you end the line of credit before the designated time
- Prepayment fees may be charged if you pay off the borrowed amount before the term is over
To avoid surprise charges, always be aware of ripoffs and request information about potential fees before signing.
Can I Get a 100K Business Line of Credit?
Business lines of credit are available in all shapes and sizes. Like conventional term loans and cash advances, you can find business line of credit options ranging from as low as $10K to as high as $500K, and possibly higher.
Getting a $100K line of credit is possible, assuming you meet the lender’s qualifications.
Get Qualified
Ready to get started?
At National, we make the funding process as easy as possible. Once you apply, we’ll give you the opportunity to complete the application by submitting bank statements or connecting your bank account.
Then, a Business Financing Advisor will reach out to discuss options available to your business. Once you finalize your choice, the funds will be deposited in your account. It’s that quick, simple, and easy!
Get started by completing our digital application now!
Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.