Table of contents
As a small business owner, you have many different options when it comes to financing.
If you’re looking for a flexible solution that’ll help you manage cash flow disruptions, cover unanticipated expenses, or pursue new growth opportunities, you’ll want to consider a business line of credit.
A business line of credit is a type of revolving loan that gives you access to a fixed amount of capital – aka your credit limit. It works similarly to a credit card but comes with lower interest rates and larger funding amounts.
How to Apply for a Business Line of Credit
Applying for a business line of credit is as simple as finding a lender offering the product and filling out an application. Securing the most competitive terms, however, isn’t as straightforward.
If you’re applying to lenders individually, here are the steps you’ll need to take.
Research Lenders – The first step in securing a business line of credit is to thoroughly research potential lenders. Begin by identifying 5 to 10 reputable institutions, including traditional banks, online lenders, and financial marketplaces that specialize in supporting businesses at your revenue stage. By expanding your search to include both local and national options, you position yourself to compare a diverse range of interest rates, loan terms, and qualification requirements.
This approach enables you to evaluate not only the competitiveness of each offer but also the lenders’ specialties—such as support for industries like construction, retail, or manufacturing—ensuring alignment with your business’s unique operational profile.
Fill Out Applications – Once you have identified your shortlist of suitable lenders, the next step is to complete and submit each lender’s application with accurate, up-to-date information about your business operations, revenue, and financing needs.
While applications may have standard requirements—such as business financial statements, tax documents, or proof of revenue—be aware that each lender may request different supporting documents or specific details tailored to the type of business line of credit you are seeking.
Review Approvals – After submitting your applications, you will likely receive multiple approval offers with varying interest rates, credit limits, repayment terms, and fees. Carefully review each approval and compare the features that matter most for your business, such as flexibility, funding speed, costs, and any industry-specific advantages that a lender may provide.
Examine not only the headline numbers—like the interest rate and repayment period—but also the fine print, including potential penalties, draw fees, and access requirements, as these can impact your bottom line over time. Consider how each offer supports your operational needs and overall growth strategy.
For example, if you rely on seasonal inventory or experience unpredictable cash flow cycles, a more flexible draw schedule or absence of prepayment penalties may be significant.
Finalize a Contract – Once you have carefully compared all your approval offers and determined which lender aligns best with your business’s needs, the next critical step is finalizing the contract. At this stage, review the final loan agreement thoroughly, paying close attention to all terms—including interest rates, repayment schedules, draw procedures, and any fees or covenants—so you fully understand your financial commitments.
If any questions arise or certain terms seem unclear, do not hesitate to discuss them with your lender; clarity at this juncture prevents future surprises and empowers you to make informed decisions.
For most business owners, going through all these steps will take too much time away from their business. National Business Capital’s 75+ lender marketplace was created for this very purpose.
How Do I Qualify for a Business Line of Credit?
Business line of credit requirements will vary according to different lenders. Most traditional lenders, like banks, emphasize revenue, business history, and credit score.
You’ll most likely be asked to provide numerous business financials, including personal and business tax returns, bank statements, profit-and-loss statements, balance sheets, and other financial statements.
Other types of lenders, especially online banks or fintech companies, tend to be more lenient. They tend to value revenue and your business’s potential for growth over credit scores and history.
For example, National is an online marketplace featuring a diverse platform of lenders. At a minimum, you’ll need to have at least 1+ year of business history and $120K in annual revenue to qualify. Plus, there are financing options for a wide range of credit scores.
If you’re looking to secure a larger borrowing limit or qualify for better interest rates, it may be helpful to put up collateral in exchange for financing.
Secured vs. Unsecured Business Line of Credit: What’s the Difference?
A secured business line of credit is where you put up collateral, such as inventory, property, or accounts receivables, in exchange for financing.
An unsecured business line of credit doesn’t require any collateral or assets. Instead, lenders will look at your business financials and other factors.
Some lenders, such as banks, may require collateral if you’re seeking a large amount of financing or if you’re lacking in qualifications.
Lenders view secured business lines of credit as less risky than unsecured lines of credit. The reason behind this is simple – if you fail to pay back your secured line of credit, lenders can seize your assets.
If you agree to collateral or a lien, your assets are at potential risk. This becomes especially dangerous if you’ve agreed to a personal guarantee, which would allow lenders to go after your personal property, such as your home, if you can’t make payments.
Not all lenders will require collateral in exchange for a business line of credit. Make sure to ask different lenders about their requirements to make the best decision.
Business Credit Cards vs. Business Credit Lines
Business lines of credit are similar to business credit cards. They both offer access to a set amount of funds you can draw from as you need. Nevertheless, there are major differences between these two forms of financing.
For starters, business lines of credit feature higher credit limits than credit cards. They also make it a lot easier to access cash. Although you can withdraw cash from your business credit card, you’ll most likely be charged additional fees or a higher APR.
Aside from a 0% introductory period, business lines of credit usually feature lower interest rates than credit cards. Business lines of credit also typically come with fixed interest rates, while credit card interest rates are variable and can change according to market conditions.
However, business credit cards come with favorable rewards or cashback programs. For these reasons, you’ll want to use your business credit card to manage everyday, smaller expenses, such as office supplies, meals, travel expenses, or any other category that offers rewards.
On the other hand, a business line of credit is best suited for larger, ongoing expenses or as an emergency fund.
How Does a Business Line of Credit Work?
A business line of credit is one of the most flexible forms of financing. Unlike traditional loans, where lenders provide lump sum payments, businesses draw capital from their credit line as needed and only pay interest on the amount drawn.
The borrower has considerable autonomy over how they can spend the funds. Whenever a need for cash arises, the borrower can transfer funds from their credit line to their business bank account and use them immediately. This happens instantly, allowing the business to quickly take advantage of opportunities or solve challenges.
Repayment works similarly to a business credit card. Borrowers repay their balance, and the funds become available again.
Business lines of credit don’t come with fixed-payment terms. Your payments will depend on how much of your credit limit you’ve borrowed and your lender’s preferred payment schedule – which is typically weekly or monthly.
In most cases, credit limits are lower than funding amounts for small business loans. Your credit score weighs heavily on your ability to reach an approval if you aren’t offering collateral or signing a personal guarantee, which typically reduces the credit limit offered by lenders.
Many business owners will use a line of credit as an emergency fund or to purchase new inventory, hire new staff, invest in marketing campaigns, and cover other ongoing expenses/lump-sum purchases.
Why Choose National Business Capital to Get a Business Line of Credit?
We have a direct lending platform as well as negotiate with lenders on your behalf, keep your business’s best interest in mind from start to finish, and offer ROI guidance to help maximize the effectiveness of every borrowed dollar, allowing you to focus on what matters most – your business.
Whether you have an immediate opportunity or one that’s later in the year, it’s a good idea to explore your options. Complete our digital application to get started.
ABOUT THE AUTHOR
Joseph Camberato is the CEO & Founder of National Business Capital, where he has led the company in funding more than $2.5 billion for growth-minded businesses since 2007. With firsthand experience building NBC from a startup into a national private lender, Joe writes on the economic forces shaping access to capital, including interest rate shifts, private credit trends, and the challenges mid-sized companies face when banks pull back.
