Business Line of Credit

A business line of credit is a type of loan that gives you flexible access to cash on an as-needed basis. It’s often a revolving line of credit, and you can withdraw cash from your total credit limit for any business purpose – and only pay interest on what you use.

More cash will become available as you pay down your balance. Business lines of credit are ideal for small business owners who want to keep ownership and control. They can be used for emergencies or any other business-related purpose.

Business lines of credit function more similarly to credit cards than other types of term loans — but you can write off interest on lines of credit come tax season.

You’ll receive a total credit limit after qualifying for a business line of credit. You can transfer any amount you need online from your credit line to your business bank account in any number of installments for fast business financing. You’re also under no obligation to use the full amount.

You can continue to access additional cash as long as unpaid withdrawals stay under the credit limit. Instead of paying interest on the entire credit limit, you’ll only pay interest on what you take. 

Before signing an agreement, ask for clear information about any fees, such as non-utilization fees, if you don’t use the credit line. Avoid any agreements without clear, transparent information.

Remember: The best small business line of credit is one that fits your business and where it’s headed. Choose an experienced and trustworthy lender who can help you achieve your business’s goals.

What’s the difference between a line of credit vs. a small business loan? Both give your business the cash you need to grow, but how these products are structured differs.

Business Lines of Credit:

• Can be revolving credit
• Draw funds in any amount you’d like, up to the entire loan amount
• Only pay interest on withdrawn funds
• Typically include higher interest rates and lower closing costs

Business Loans:

• Installment credit
• Funding amounts are generally higher
• Receive the loan in a lump sum deposit
• Pay interest on the entire loan amount

A business credit line can be secured or unsecured, depending on whether your lender requires you to put up collateral. 

A borrower offers collateral as security to the lender if they default on the loan. For example, if you were to secure your credit line equipment or property, that asset would become the collateral. If you were to default on the loan, the lender has a legal right to seize the collateralized assets to recoup the unpaid amount.

Secured Lines of Credit:

• Backed by collateral
• Higher credit limits
• Lower interest rates
• The lender can seize the collateral if the borrower defaults on payments

Unsecured Lines of Credit:

• Not backed by collateral
• Higher interest rates
• Lower credit limits
• More stringent qualification process

Remember that using your home as collateral for a secured business line of credit is against the line of credit best practices. It risks your personal and business life, so it’s usually not a wise choice.

There are slightly different application processes for business lines of credit depending on your lender, the type of line of credit, and more. But the basic application process typically goes like this:

1. Gather documentation.
2. Submit applications for a few different business lines of credit lenders.
3. Review and compare loan terms.
4. Select your ideal option.

As for documentation, here’s what you’ll  usually need:

• Driver’s license
• Business bank statements (going back at least one year)
• Business credit score
• Financial statements
• Time in business
• Proof of ownership (K1, schedule C, EIN, certificate of corporation, etc.)
• Business tax returns
• Collateral (if secured)
• Cash flow statement
• Business plan

These are the most common application requirements, but it’s not an exhaustive list.

Applying through National Business Capital can simplify this process — you can learn more about your options from our team of expert advisors with only one application.

Banks and credit unions typically have more aggressive and demanding qualifications, so these lenders can be more difficult for applicants with less-than-stellar financial histories. But these aren’t your only options.

National Business Capital focuses on your business performance and opportunity for success over traditional factors like history and credit. Applying and qualifying for the best business line of credit can take some effort, but it’s not complicated or time-consuming with our help.

You’re only a few clicks away from the capital you need to reach your full potential.

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Move through our streamlined application and upload your business documents with zero risk.

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Compare your offers with expert advice from our team and select the best one for your specific circumstances.

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Seize the opportunity to grow your business or confidently tackle a new challenge.

We educate you on the best options available within our platform to ensure you get the best line of credit available.