A business line of credit is a valuable financial tool that lets your business access funds as needed instead of borrowing it all at once in a lump sum—potentially saving a lot of money on interest.
This flexibility can help with managing cash flow, covering unexpected expenses, or investing in growth opportunities.
This post walks you through the steps to get a business line of credit, common mistakes to avoid when applying, and whether a business line of credit is the right choice for your organization.
How do I get a business line of credit?
If your business could use some extra cash, here are 7 steps to help you secure a business line of credit.
1. Decide how much funding and cash flow you need
Carefully assess your financial needs to decide how much funding you need for your business. It's generally a good idea to request a higher credit limit than you need right now to cover potential future cash flow needs. Before you apply, think about any upcoming expenses or growth opportunities that may require additional funding.
2. Check your eligibility
Assess your credit history, business revenue, and time in business to determine your eligibility for a business line of credit. Higher credit scores and longer business histories increase your chances of approval. Be sure to have this information ready when applying for a business line of credit.
3. Decide between secured and unsecured business lines of credit
If it doesn't look like you'll be eligible for an unsecured line of credit, you might want to consider a secured line instead. A secured line requires collateral, which usually means you'll have to deposit cash with the lender that typically serves as the credit limit. That might not sound like much of a loan, but it can help your business build a strong credit history—so you can access more funds in the future.
4. Research and compare lenders
When you're thinking about a business line of credit, it's important to research and compare different lenders. This includes banks, credit unions, and online lenders. By exploring these options, you can find the best terms and rates for your needs. Compare factors like maximum credit limits, repayment terms, and APR ranges to make an informed decision.
5. Gather the required documentation
When you're ready to apply for a business line of credit, gather all the documentation you might need. This includes your tax ID number, personal and business tax returns, business licenses, bank statements, and financial statements. Reach out to the lender to double-check the necessary paperwork—unless you're applying through an online form, in which case you may be able to apply in just a few minutes.
6. Submit your application
To submit your application, you can complete the process online or in person, filling out details like your name, business info, desired loan amount, and purpose. After submitting your application, you'll need to wait for a decision from the lender, which can range from a few minutes to several days.
7. Use your line of credit wisely
Once your line of credit has been approved, use it wisely. Draw money from your line of credit into your bank account as you need it, but remember to pay it back on time. Using your line of credit responsibly is one of the best ways to build a strong credit history, so you can borrow more money in the future.
Common mistakes (and approval hurdles) when applying for a business line of credit
When you're applying for a business line of credit, here are a few common mistakes to avoid so you don't hurt your chances of approval.
1. Inaccurate information
One of the biggest mistakes you can make when applying for a business line of credit is providing inaccurate information. Make sure that all details—including your contact information, financial statements, and business revenue—are correct.
Inaccurate information can delay the process or lead to rejection.
2. Insufficient credit history
Your business credit history (and sometimes your personal credit history) determines your eligibility for a business line of credit. Lenders typically look for a personal credit score of at least 680 or a business credit score of at least 75, although some may accept lower scores.
If your credit history is lacking, it may impact your ability to obtain a line of credit or result in higher interest rates. In that case, you might want to consider a secured line of credit instead.
3. Limited business revenue
Most lenders require a certain minimum annual revenue or monthly revenue for businesses applying for a line of credit. If your organization doesn't meet the revenue threshold set by the lender, you may face challenges in obtaining financing.
Make sure you have a clear understanding of your revenue and how it aligns with the lender's requirements.
4. Short time in business
The length of time your business has been operating can also impact your eligibility for a business line of credit. While traditional banks may require at least one to two years of business history, online lenders may have more flexible requirements.
A shorter time in business could lead to higher interest rates or an application rejection. If that's your situation, consider offering collateral for a secured line of credit.
5. Lack of required documentation
Make sure you have all your documents handy when you're applying for a business line of credit. Lenders typically require your business or personal tax returns, financial statements, and business licenses—plus basic information like your business address and employer identification number (EIN) or social security number.
If you don't provide the required documentation, your application could be delayed or rejected.
6. Other reasons you might not be approved
In addition to the common mistakes and issues outlined above, there are several other reasons you might not be approved for a business line of credit. Factors such as current economic conditions, industry risk, or the lender's internal policies can influence the approval decision. Be prepared for potential challenges and have a backup plan in case your application isn't approved.
Is a business line of credit right for you?
If you want to access some extra cash and build your business's credit profile, there are several tools that can help you do it. Here's a quick table to help you compare business lines of credit against business loans and the BILL Divvy Card powered by Visa* (issued by Cross River Bank, Member FDIC).
Is a small business loan better than a line of credit?
The answer depends on your business needs. Small business loans offer you a lump sum up front, where a credit line lets you decide how much you want to borrow when. A credit line is there when you need it, but you don't have to use it.
If you need the loan for a specific asset—such as to buy a building for your business or a large piece of equipment, a small business loan that's secured by the asset may give you better rates. Since you need the full amount up front, this might be a better option for you.
However, if you don't need the loan to buy a specific asset, then an unsecured business line of credit might be what you need. A small business line of credit gives you the flexibility to borrow when you need a little extra cash without having to borrow the entire credit line at once.
Would a business credit card or corporate card be better than a line of credit?
That depends on what you want to use the money for. If you have specific needs for the line of credit, be sure to research lenders and read the fine print on the loan agreement. There may be limits regarding what you can spend the money on.
You can pull money from unsecured lines of credit into your business bank account, but lenders don't like to see revolving credit used to meet your operating expenses. They may see it as an inability to manage cash flow.
A business credit card or corporate card can be used to buy anything you can buy with a credit card. That's true for both secured and unsecured lines of credit when accessed through business credit cards. You may even be able to draw funds from the card into your business checking account as a cash advance, but that depends on the card.
Lines of credit work a lot like business credit cards—they come with a credit limit, you can use them as you need them, and you'll need to make monthly payments. You can also request a credit line increase for a higher credit limit.
See if the BILL Divvy Card is right for you — with lines of credit from $1,000 to $5M. (Card issued by Cross River Bank, Member FDIC. Credit lines are not guaranteed and will be determined upon application approval.)
Getting a business line of credit FAQs
Here are answers to some commonly asked questions concerning a business line of credit.
Business line of credit rates and fees
Interest rates on business lines of credit can be variable or fixed, but the interest rate itself depends on many factors, including the lender, the current prime rate, the amount you're hoping to borrow, and the apparent risk of the loan—especially whether or not it's secured.
In addition to interest rates, business lines of credit may also be subject to fees such as draw fees, payment processing fees, late fees, termination fees, and prepayment penalties. These fees can vary depending on the terms of the business line of credit agreement.
Is it hard to get a business line of credit?
Approval for a business line of credit is determined by factors like credit score, business revenue, and time in business. Having higher credit scores and longer business histories can improve your chances of approval. Understanding these factors can give you a fairly accurate sense of how likely it is that your business will be approved when applying for a business line of credit.
How long does it take to get a business line of credit?
The time it takes to get a business line of credit varies depending on the lender. Some lenders can provide quick lending decisions online within minutes, making the process efficient for business owners. It's important to research different lenders to find one that aligns with your needs and timeline.
What credit score is needed for a business line of credit?
A FICO credit score of 670 or higher is recommended to qualify for a low-interest business line of credit backed by your personal credit history. Some lenders may offer business lines of credit without considering your personal credit score, but the business usually requires a strong credit history of its own.
*The BILL Divvy Card is issued by Cross River Bank, member FDIC, and is not a deposit product.