Small business line of credit: everything you need to know

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Small businesses are the backbone of the American economy, and a business line of credit can mean the difference between success and failure. A line of credit can provide much-needed cash flow during tough times or help you grow your business when opportunities arise. In this article, we’ll look at how to get a small business loan (line of credit), including how they work and their benefits.



What is a small business line of credit?

It is one of the most flexible financing options for small businesses. It can be used to cover business expenses, such as inventory, marketing, or unexpected costs. Lines of credit generally have lower interest rates than other types of financing, making them an attractive option for most business owners.

How does an unsecured commercial line of credit work?

This type of financing allows you to borrow money without providing collateral. With an unsecured line of credit, you’ll typically pay interest on the money you borrow, but you won’t have to worry about losing your home or other assets if you can’t repay the loan.

Benefits of a small business line of credit

A business line of credit can provide many benefits to business owners. Below we will list just five of them:

  • Cover unforeseen expenses. A line of credit can give your business the financial capacity to adapt and cover unexpected costs, such as a sudden drop in sales or an unexpected repair.
  • Take advantage of opportunities. With a business line of credit, you’ll have the working capital available to take advantage of opportunities as they arise. This could include expanding your business or taking on a new project.
  • Manage cash. Business lines of credit can help you manage your cash flow by giving you access to funds when you need them. This can be especially useful during off-peak times or when you’re waiting for bills to be paid.
  • Lower interest rates. Business lines of credit generally have lower interest rates than other types of financing, making them more affordable in the long run.
  • Flexibility. Business lines of credit offer the flexibility to borrow only the amount you need, when you need it. You will also have the flexibility to repay the loan over time, making it easier to manage your working capital.

How do I qualify for small business lines of credit?

Eligibility for a business line of credit varies by lender, but there are some general requirements that most offline and online lenders will look for. Here are five criteria for benefiting from lines of credit for your business.

  • Personal credit score. Most lenders will look at your personal credit score to determine your eligibility for a secured business line of credit. A higher credit score will generally qualify you for a lower interest rate.
  • Business income. Lenders will also want to see proof of your business income. This may include tax returns, statements from your business bank account, or financial projections.
  • Time spent in business. The longer your business has been in business, the more likely you are to qualify for a business line of credit. Lenders will want to see that you have a history of making monthly payments on time and managing your finances well.
  • Collateral. Although not required, some lenders may require collateral to secure the loan. This could include business assets such as equipment or inventory.
  • Business plan. Finally, lenders will likely want to see a business plan outlining your business goals and how you plan to use the business line of credit funds.

Top Lenders for Small Business Owners Looking for a Line of Credit

Below, we’ll look at the best online lenders for secured and unsecured business lines of credit. In case you missed it, Bank of America is launching a new credit card and line of credit for small businesses.

1. Blue Vine

If you’ve been in business for at least six months and have a minimum credit score of 600, Bluevine will give you a line of credit between $6,000 and $250,000.

2. Wells Fargo

To get a $5,000 to $100,000 business line of credit with no collateral required from Wells Fargo, you will need to be in business for two years. They do not disclose the minimum credit score required.

3. Cabbage

Qualified for financing between $1,000 and $150,000 from Kabbage, you will need to have been in business for at least one year and have a credit score of 640 or higher.

4. American Bank

US Bank will give you a line of credit of up to $100,000 (unsecured) or $250,000 (secured) with a credit score of 680 and two years in business.

You can get a $6,000 to $100,000 business line of credit through OnDeck if you’ve been in business for a year and have a credit score of 600.

6. TD Bank

Borrow up to $100,000 from this online lender with a 650+ credit score. The best part is that even new businesses qualify for business lines of credit with this lender.

7. Credible

Credibly, you’ll get up to $250,000 in financing as long as you have a 560 credit score and have been in business for six months or more.

8. Lendio

Get financing from $1,000 to $500,000 from Lendio with a credit score of just 560. Plus, your business only needs six months to qualify.

9. SBG Funding

At SBG Funding, you can borrow up to $150,000 if you’ve been in business for at least six months and have a minimum credit score of just 500.

10. Checkout

To get a line of credit of up to $150,000 from Fundbox, you’ll need a credit score of 600 and your business only needs to be open for a minimum of six months.

Small business line of credit versus business credit card

There are a few key differences between business credit cards and lines of credit (which are small business loans). Business credit cards are easier to get, but they tend to have lower credit limits and higher interest rates. Business loans are more difficult to obtain, but they generally have lower interest rates and higher credit limits.

Is a line of credit a good idea for a small business?

Yes. It gives you the ability to borrow money when you need it, up to a certain limit, and then pay it back over time. In general, a line of credit is a good option for a small business owner who needs access to cash but doesn’t want to go into debt.

What credit rating do you need for a commercial line of credit?

Most lenders require a minimum credit score of 680 to qualify. However, some lenders are willing to accept scores as low as 580. A higher credit score tells lenders that you are a low-risk borrower and more likely to repay your debt on time and in full.

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