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If you own a business, you probably already know that sometimes you need access to working capital to help you grow. Even the most successful small businesses experience late invoice payments, urgent unplanned expenses, and other short-term situations where cash flow is less than certain. In cases like these, access to some extra funds can mean the difference between closing your business or surviving the tough times and coming out on top.

When it comes to business financing, you’ve got an enormous array of different options to consider. A business line of credit is a popular choice among small business owners. In this article, we are going to talk extensively about a business line to credit.

  • What is a Business Line of Credit?
  • How Does a Business Line of Credit Work?
  • What Qualifies You for a Line of Credit?
  • Business Line of Credit Criteria
  • What Credit Score do you Need for a Business Line of Credit?
  • How Long Does it Take to Get a Business Line of Credit?
  • Is a Business Line of Credit the Same as a Loan?
  • Is Getting a Line of Credit a Good Idea?
  • Can You Get a Business Line of Credit With Bad Credit?
  • Best Business Line of Credit
  • Which Bank Gives Personal Line of Credit?
  • Startup Business Line of Credit
  • Business Line of Credit Requirement
  • Business Line of Credit Rates
  • Capital One Business Line of Credit
  • Small Business Line of Credit
  • Business Line of Credit vs Credit Card
  • Does a Business Line of Credit Affect Personal Credit Score?
  • Why Should a Business Have a Line of Credit?
  • What is the Average Interest Rate on a Business Line of Credit?
  • Where to Get a Line of Credit With Bad Credit
  • How are Business Lines of Credit Payments Calculated?
  • How to Get Business Line of Credit
  • Business Line of Credit for New Business
  • Business Line of Credit Secured
  • Business Line of Credit Companies
  • Business Line of Credit no Credit Check
  • Business Line of Credit Fees Tax Deductible
  • Amazon Business Line of Credit Requirement
  • PNC Business Line of Credit Requirement
  • Bluevine Business Line of Credit Requirement
  • Citibank Business Line of Credit Requirement
  • Unsecured Business Line of Credit Requirement
  • Kabbage Business Line of Credit Requirement
  • How to Get Business Line of Credit for New Business
  • How to Apply for Business Credit for New Business
  • How Much is a Business Line of Credit?
  • How to Get Approved for a Line of Credit With Bad Credit

What is a Business Line of Credit?

A line of credit is a predetermined amount of funds that you can borrow from when you need to and pay back later. Unlike a traditional term loan, you can use the funds as and when you need them for business purchases like inventory, supplies, or operating expenses.

Read Also: Dropshipping

Unlike a term loan which has a fixed monthly repayment, you can typically pay back your credit line anytime, without any early repayment fees. Calculate the estimated pricing with our line of credit cost calculator.

A critical difference between lines of credit and term loans is that lines of credit are “revolving.” That means you can use the funds, up to your approved amount, then repay what you’ve used to make the funds available again. Term loans, on the other hand, are lump sum loans that you use once and repay once, with interest.

How Does a Business Line of Credit Work?

Business lines of credit are similar to business credit cards, both allowing small businesses to access funds when needs arise instead of the lump sum a business loan would provide.

Interest rates on business lines of credit are typically lower than those of a business credit card. Lenders set credit limits and interest rates based on factors like how long the current owner has been in place and what the company’s annual revenue is. A line of credit typically requires renewal annually.

What Qualifies You for a Line of Credit?

Personal LOCs often come with lower interest rates than credit cards, making them a superior choice for borrowing. They also offer variable access to cash instead of a lump-sum, single-purpose loan. A credit line allows you to borrow in increments, repay it and borrow again as long as the line remains open.

Typically, you will be required to pay interest on borrowed balance while the line is open for borrowing, which makes it different from a conventional loan, which is repaid in fixed installments.

Personal lines of credit are unsecured, which means you don’t need to offer collateral to protect the lender if you default. That makes it different from home equity lines of credit (HELOCs), which are secured by the equity in your home. Since risk is a key facet of lending, interest on a LOC almost certainly will be higher than on a HELOC.

Therefore, it’s crucial to convince the lender you are a good risk. Never having defaulted on a loan, or not having defaulted in years, helps. Having a high credit score also demonstrates creditworthiness. You should also let the lender know about all sources of income and your savings, which can help establish you as a good risk.

Business Line of Credit Criteria

To get approved for a business line of credit from a bank, you’ll need to complete a thorough application process. When you apply, the prospective lender will review your financial statements and assets, and more.

Here are some common requirements for getting a new business line of credit from a major lender. This is not a complete list and different lenders may have different requirements, but this will give you a good idea of what you might need to provide.

  1. Collateral: As we discussed above, a secured business line of credit is safeguarded by collateral which you provide. This may include (but is not limited to): real estate equity, physical inventory, equipment, or accounts receivable. Your business guarantees the loan with that collateral, reducing the risk for the lender. Sometimes a lender will tell a small business owner to pledge all of their assets to secure a business line of credit.
  2. Business operating time: Most lenders will have a requirement that a business be in operation for a certain length of time before qualifying for a line of credit. Some lenders (such as major banks) may only consider businesses that have been in operation for at least two years. If the lender feels a startup has good collateral and sound personal credit, it may make a rare exception. Time in business requirements may differ from lender to lender, so be sure to ask.
  3. Financial statements and reports: According to the US Small Business Administration and reported in USA Today, only 20 percent of new businesses survive past their first year of operation. That’s one reason why most banks require extensive financial statements along with income tax returns spanning at least two years to consider your business for a line of credit.
  4. Profit and revenue: Your business should generate revenue to be eligible for a business line of credit. When you apply, chances are you will be asked to provide proof of revenue and business health. In cases where there is not enough income or profit to satisfy the lender, the business may have an option to provide collateral in case of default.
  5. Guarantee: If your business is a subsidiary of a big organization, the lender may need the parent organization to give a guarantee for your subsidiary before it gives a business line of credit to the subsidiary. If you’re an independent small business owner, you may need to make a personal guarantee.
  6. Economic ratios: By cross-checking certain important economic ratios of your business, the lender can estimate your business performance. These ratios may include:
    • Debt to equity
    • Current ratio
    • Debt service coverage ratio
    • Fixed-charge coverage ratio

What Credit Score do you Need for a Business Line of Credit?

Because it’s your business that’s borrowing money, you may wonder why your personal credit score is considered at all. It’s because business lines of credit often require a personal guarantee — that is, you’ll be personally responsible for paying back the debt if your business can’t. In addition, traditional lenders often want to make sure the borrower has “skin in the game” to increase the likelihood that the loan will be repaid.

To ensure that you can make good on that personal guarantee, lenders will typically run a personal credit check. In fact, it’s not unusual for lenders to require a personal credit check for any owner of the business with 20% or greater ownership. It’s possible to get a business line of credit with a poor credit score, but your options will be limited, and you may end up with a high interest rate.

Your credit history illustrates the likelihood of you defaulting. While most lenders require a personal credit score of around 680, some lenders accept scores as low as 580 to 600. However, the higher your score, the better chances you have at securing a lower interest rate or higher loan amount.

How Long Does it Take to Get a Business Line of Credit?

Turnaround times vary by lender, and it can take as little as five minutes or as long as several days to get a decision. Your lender may also require you to provide additional documentation after reviewing your application.

Common information your lender may ask for includes:

  • Your name
  • Business name
  • Social Security number (SSN)
  • Desired loan amount
  • Loan purpose
  • Business Tax ID
  • Annual revenue

If your loan is approved, a lender will send you a loan agreement to sign before issuing your line of credit you can draw from.

Is a Business Line of Credit the Same as a Loan?

Business loans and business lines of credit are different forms of business financing. With a business loan, you’ll receive a lump sum of money and pay it back over time. A line of credit is a pool of money that you can keep dipping into, up to a limit.

In general, business loans are best suited for financing specific projects. Lines of credit are more like business credit cards, making them useful if you want to tap into working capital on an as-needed basis.

The best choice for your business depends on how much financing you need, what you want to use it for and what you can qualify for.

Business loanBusiness line of credit
How much financing do you need?Varies widely, but loans usually offer more financing than lines of credit.Varies widely, but lines of credit are usually smaller than loans.
What do you need financing for?A specific purpose. In your loan application, you’ll have to explain what you plan to do with your loan funds.Can be used for any purpose.
How do repayments work?Installment credit — you receive a lump sum and pay it back in regular installments over time.Revolving credit — you can carry a balance that accrues interest and pay it back as you’re able, then borrow more.
Do you have collateral?Almost always requires collateral.Unsecured lines of credit do not require collateral.
What product can you qualify for?Tends to require good credit, multiple years in business and more annual revenue.Usually easier to qualify for than business loans.

Is Getting a Line of Credit a Good Idea?

Personal lines of credit have many compelling features. They act as an affordable payment tool for the things you’re ready to buy. They can also function as a way to manage planned expenses without having to wait for compensation to be delivered into your bank account or needing to liquidate investments. A personal line of credit can also be a strategic refinancing option for high-interest debt you currently hold.

Keep in mind that terms and conditions of a specific personal line of credit will vary by lender, but these are generally the key benefits:

1. Lower interest rate than credit cards

In general, a personal line of credit will offer a lower interest rate compared to a credit card, with the caveat that interest rates will vary, depending on the lender. This makes financing expensive purchases affordable.

For example, you may have visions of your dream home, but you may not want to draw from your reserves for the cost of an upgraded kitchen, adding a deck or purchasing all new appliances. It may not make sense to charge these larger expenses to a high Annual Percentage Rate (APR) credit cards, because the fees can ultimately lead to higher overall costs.

You won’t have that issue with a personal line of credit. You can also refinance existing debt by using the credit line to pay down higher-interest student or auto loans.

2. Flexible access to cash

There is peace of mind in knowing that you can easily handle anticipated expenses that can be tough to precisely time or that might arise outside your normal compensation schedule. With a personal line of credit, you won’t have to delay a home renovation project, a major move to begin a new job or other family planning needs.

Having the funds now, rather than waiting for that annual bonus, will ensure that you can achieve your financial goals whether they’re near or far into the future. And if those situations never come up, you won’t be charged any interest on the money that’s on standby.

3. Varied spending options

You can use the funds from a personal line of credit on almost anything. Maybe your daughter just announced her engagement and you’ve promised to pick up the tab for the wedding, or you and your spouse want to take a second honeymoon to a dream destination. Perhaps you want to start a family and are considering undergoing fertility treatments.

Or maybe you’re looking into the future and want to ensure that you can financially handle years of summer camp, piano lessons and private school. You’re in control. Terms vary by financial institution, but typically, as long as you don’t use the funds for commercial and business expenses or for speculative and illegal purposes, you decide on what you want to do with the money.

4. Payments only on what you borrow

With a personal line of credit, you take from the available balance only the amount you need during the draw period, and interest only accumulates on what you borrow.

A personal line of credit is often revolving, which means that as soon as the debt is repaid, you can borrow up to your credit limit again without going through another loan approval process. For a non-revolving line of credit, the account is closed when the credit line is paid off.

Depending on the lender, your personal line of credit payments may be interest-only, or encompass principal and interest. You’ll be responsible for at least making minimum payments on the amount you borrow each month.

Such flexibility is advantageous for fluctuating expenses like medical bills. Health insurance may not cover all treatments, or have a high deductible and costly co-pays. Hospital visits, x-rays, a battery of blood tests, surgeries, orthodontics, dental implants, eyeglasses, hearing aids — all can make a huge dent in your bank account. Using a personal line of credit to manage anticipated medical expenses can help put your finances in a healthy position.

Can You Get a Business Line of Credit With Bad Credit?

Some lenders have their own standards to define bad credit, but in general, a score between 350 and 599 is considered poor.

A low credit score could occur for several reasons. A missed payment, foreclosure, collections, or bankruptcy can pull a credit score down quickly. Even having too many new accounts or high credit utilization can drag a score down. Unfortunately, most lenders don’t consider the circumstances and just see one thing with a low credit score: risk.

Maybe you’ve tried to qualify for some other business financing in the past and have been turned down. The great news is that business lines of credit are available to everyone, even applicants with low credit scores.

Whether you have an emergency expense and need money quickly, or you just want to have a backup form of funding on-hand for the future, a line of credit can be good for your business. Before you apply, become familiar with the best lines of credit for borrowers with poor credit scores.

Best Business Line of Credit

Many lenders only work with established businesses, which can make getting funding harder if you’re a startup. Fundbox is different and works with businesses that have at least three months of business transaction history in a business checking account.

Fundbox has a very short repayment period — either 12 – 24 weeks, with weekly payments and an interest rate that changes depending on which option you select (the 24-week is more expensive than the 12-week). In addition, it’s best to wait to apply until you know you’ll need your first draw, as Fundbox states that “if you do not draw funds at least once, close to the date you are approved, we may need to close your account.”

Which Bank Gives Personal Line of Credit?

A personal line of credit is a loan you can access when you need it. Rates vary among lenders. You can find an unsecured line of credit — for which you don’t need collateral — or a secured line of credit — for which you do need collateral.

To help you figure out your best option for borrowing money, here’s a look at seven of the best personal lines of credit and the difference between a personal line of credit and a personal loan.

Line  of CreditTypeRatesAmount
U.S. Bank Personal Line of CreditUnsecured11.00% APR Up to $25,000 
TD Bank Personal Unsecured Line of CreditUnsecured8.25%-13.25% APR $20,000-$50,000
Regions Bank Preferred Line of CreditUnsecured8.24%-21.24% APR $3,000-$50,000
Regions Bank Credit LineUnsecured21.90% APR $500-$3,000 
KeyBank Preferred Credit LineUnsecured8.24%-14.24% APR$2,000-$25,000
Regions Bank Savings Secured Line of CreditSecuredVariable, based on Wall Street Journal prime rate plus a margin of 2.00%-3.00%$250-$100,000 
PenFed Credit Union Personal Line of CreditBad creditRates as low as 5.99% APR  Up to $25,000  

Startup Business Line of Credit

When you’re running a startup, it’s necessary to access capital to fund day-to-day operations and grow the company. A line of credit is one way to get that funding, and it can be a helpful tool for managing cash flow and covering unexpected expenses. But with so many options out there, it can be tough to determine which line of credit is right for your business.

Here are a few tips to help you compare lines of credit and choose one that fits your needs:

  • Look for a credit line with no hidden fees. Some lines of credit come with annual fees, origination fees and other hidden charges to help cover the lender’s administrative costs. Read the fine print so you know exactly what you’re getting into and, where possible, choose a lender that does not charge extensive fees that drive up the cost of borrowing.
  • Compare interest rates and terms. Interest rates on lines of credit can vary widely but typically range from 10% to 80%, with the most competitive rates reserved for those with excellent credit. Draw periods often last 12 to 24 months. Choose a lender with interest rates and repayment terms that align with your budget and borrowing needs.
  • Consider your collateral options. Secured lines of credit require collateral like real estate or other valuable business assets, while other financing does not. If you’re not comfortable pledging collateral for a loan, opt for an unsecured business line of credit for your startup.
  • Choose a lender you’re comfortable with. Shop around and compare lender options to find a financial institution you trust and feel comfortable doing business with. This may involve working with your current bank, reading online reviews and asking friends and colleagues for recommendations.
  • Consider the credit limit and how it will meet your needs. Make sure the credit limit is high enough to cover your needs but not so high that you’ll be tempted to overspend.
  • Make sure the line of credit is flexible to grow with your business. As your business grows, you’ll need access to more capital. Choose a line of credit that has the potential to grow with your business so you’re not stuck with financing that doesn’t meet your needs down the road.

Business Line of Credit Requirement

When you apply for a business line of credit, lenders will look at a number of different factors. While your goal is to get the funding you need, the lender’s is to get repaid and to make money from the loan. If your business is considered too risky as a borrower, then you might have a hard time qualifying for a line of credit. 

Also, lenders often use a risk-based pricing model to determine the interest rate — the more likely the lender views your business as being able and willing to make payments on time, the lower interest rates will be. 

While actual business line of credit requirements can vary by lender, as with term loans, here are some of the factors they may consider.

Personal Credit Score

Because it’s your business that’s borrowing money, you may wonder why your personal credit score is considered at all. It’s because business lines of credit often require a personal guarantee — that is, you’ll be personally responsible for paying back the debt if your business can’t. In addition, traditional lenders often want to make sure the borrower has “skin in the game” to increase the likelihood that the loan will be repaid.

To ensure that you can make good on that personal guarantee, lenders will typically run a personal credit check. In fact, it’s not unusual for lenders to require a personal credit check for any owner of the business with 20% or greater ownership. It’s possible to get a business line of credit with a poor credit score, but your options will be limited, and you may end up with a high interest rate.

Borrowers generally need good credit scores, which means having a FICO credit score of 680 or higher.

Business Credit Scores

In addition to running a personal credit check, lenders may look at your business credit scores and reports. If your business doesn’t yet have a credit history or it’s a new business, the lender will rely mostly on your personal credit scores. 

If, however, you have an established business credit history (good or bad), lenders may use it to help determine the risk of lending to your company.

To find out where you stand, you can check your business credit scores with Nav, as well as your credit reports with Dun & Bradstreet, Experian, and Equifax. 

Business Financials

Your personal and business credit scores are important elements lenders to consider during the underwriting process. But they’re far from the only considerations. 

You may be required to provide business financial statements such as your balance sheet and/or profit and loss statement.

Lenders may also evaluate financial ratios such as: 

  • Debt to equity
  • Current ratio
  • Fixed-charge coverage ratio

One important financial ratio that may be considered is the debt service coverage ratio. Here, lenders divide your net operating income for the year by your current liabilities (due within the next 12 months). Ideally, your debt service coverage ratio will be above 1.25, which means that your operating income is 125% of your current liabilities.

The better the ratio, the likelier it is that you’ll get approved with favorable terms. It is possible to get approved with a lower ratio, but it may not be the best line of credit option.

Time in Business

Small businesses have a high failure rate. According to the U.S. Small Business Administration, roughly one-third of all businesses don’t survive two years, and only half make it to the five-year mark.

With repayment terms that go longer than five years, small business lenders are understandably cautious about lending to brand-new companies without a track record. 

Time in business requirements can vary from lender to lender, but most will typically want to see that you’ve successfully run your business for two years or longer. Some lenders may have less strict guidelines, allowing you to apply if your business is at least one year old, but in most cases, you’ll have a hard time finding a low-cost line of credit if your company is less than two years old.

Annual Revenue

Increasingly, lenders are scrutinizing business revenues and even cash flow. Requirements can vary from lender to lender, but you’ll typically need at least $50,000 in annual revenue for many online lenders and $100,000 (or more) for traditional business lenders.

Having strong revenues over time shows that you’re capable of maintaining the cash flow required to pay back your business line of credit. To demonstrate revenues, lenders may require business bank account statements or may even want to link to your bank account to analyze income. 


Some industries are riskier than others when it comes to running a business. Restaurants, retail, and real estate in particular are considered riskier industries.

That said, it can help if you have experience in the industry prior to opening the business. For example, a business owner who has successfully run one or more businesses in the industry prior to their current one would show less risk to a prospective lender than someone who’s new to the industry.

If you run a business in a high-risk industry, it doesn’t mean you’ll automatically be denied, even if you don’t have previous experience. However, some lenders may choose to pass on the opportunity, giving you fewer options.

Business Line of Credit Rates

Wells Fargo Business Lines of Credit

  • New customer offer: No annual fee for the first year
  • $5,000 to $100,000 revolving credit line
  • Rates as low as Prime + 1.75%Footnote
  • No collateral required
  • Automatic enrollment in a free rewards program

Wells Fargo Prime Line of Credit

  • $100,000 to $500,000 revolving credit line
  • Monthly interest-only payments
  • Secured by business assets
  • Typically businesses with $2-5 million in annual sales

Capital One Business Line of Credit

To be eligible, you’ll need to have been in business for at least 2 years and have or open a Capital One business checking account. Loan sizes are a minimum of $10,000 and maximum of $5,000,000. Depending on the product, there may be collateral or deposit amount requirements. There’s a limit of one line of credit per tax or EIN number.

All loan applications are subject to credit approval, and normal credit standards apply. Some applications may require further consideration, and additional information may be requested.

All interest rates are subject to approval and will depend on credit profile of the applicant/business, prevailing interest rates and product. Terms will be disclosed prior to booking.

Small Business Line of Credit

A small business line of credit has more in common with a small business credit card than with a small business loan.

Like a small business loan, an unsecured line of credit provides a business with access to money that can be used to address any business expense that arises. Unlike a small business loan, however, there’s no lump-sum disbursement made at account opening that requires a subsequent monthly payment.

A small business line of credit is subject to credit review and annual renewal, and is revolving, like a credit card: Interest begins to accumulate once you draw funds, and the amount you pay (except for interest) is again available to be borrowed as you pay down your balance. As with a credit card, the lender will set a limit on the amount you may borrow.

The number-one reason to open a business line of credit is to gain access to short-term funding. Most businesses use these funds to support financing for operational expenses like supplies and payroll or for increasing inventory. Cyclical businesses often rely on an unsecured line of credit as a source of off-season working capital.

Unlike many small business loans, an unsecured line of credit is not designated for a specific purpose or purchase — it’s a good choice for small businesses looking for ways to better manage cash flow. Funds are typically drawn from the line of credit by using a business checking account, a small business credit card or even a Mobile Banking app.

Business Line of Credit vs Credit Card

Whether you need a business credit card or a line of credit depends on the intended use. While a business credit card might work better in one instance, using a business LOC might be more appropriate in another. Incidentally, both give you the means to build your business credit history.

Key Differences Between a Business Line of Credit & Small Business Credit Cards


  • Tracking expenses. Business credit cards tend to give you the ability to integrate your accounts with your existing bookkeeping software. Some even provide detailed category-based expense reports.
  • Employee cards. Business credit cards usually let primary cardholders apply for additional employee cards, often at no extra cost.
  • Rewards. Depending on the rewards credit card you get, you might benefit through higher reward rates when you spend across specific categories such as office supplies, travel and gas.
  • Interest. The interest rate assigned to your business credit card depends on your personal credit score (if you don’t have a business credit score yet) because card issuers take your personal creditworthiness into account when making their decisions. If you already have a business credit score, the card issuer will take that into account as well.
  • Interest-free days. As long as you pay off your balances in full before the end of each billing cycle, you pay no interest on purchases made through business credit cards.
  • Fees. While some business cards come with no annual fees, some charge upward of $500 per year. Other fees may come in the form of foreign transaction fees, late fees, cash advance fees and over-limit fees.
  • Added perks. Additional card-specific perks might come in the form of 24/7 access to concierge services, access to presale tickets, purchase protection, extended warranty, status upgrades with flight or hotel reward programs, complimentary airport lounge access, priority boarding, credits toward TSA Precheck, complimentary travel insurance and purchase protection.


  • Higher credit limit. Business LOCs tend to offer higher credit limits than business credit cards.
  • Widespread acceptability. You may use your line of credit to write checks, which is ideal for paying billers who don’t accept credit card payments. Some business LOCs come with access cards that give you easy means to withdraw funds. Setting up direct deposits is also usually an option.
  • Higher interest rate. Business LOC interest rates are typically higher than those of business credit cards.
  • No interest-free days. Once you withdraw funds from your business LOC, interest starts to add up from the day of the transaction.
  • Fees. It is common for LOC providers to charge origination fees of 0.5% to 1% of the credit line, although some do away with this fee completely. You might also need to pay annual maintenance fees, draw fees and late fees.
  • Rewards. You’ll be hard-pressed in finding a business LOC that offers rewards.
  • No added perks. Other than access to revolving credit, there is little else you can expect from a business LOC.

Does a Business Line of Credit Affect Personal Credit Score?

Yes, starting from the minute you complete your business credit card application. When you apply for a business credit card, a lender will often conduct a hard credit inquiry into your personal credit. Every hard credit pull has the potential to lower your personal credit score by a few points, so be prepared to see a slight dip in your score.

Some activities from some business cards can affect both personal and business credit scores, while others will influence only your business score. It all depends on what the credit card issuer chooses to report.

If your business credit card issuer reports all of your business credit card activity to both the consumer and business credit bureaus, the purchases you put on your business credit card could be factored into your total credit utilization ratio—which means that carrying a high balance on your business credit card could have a negative effect on your personal credit score.

The same goes for missed payments and other less-than-stellar credit card usage. On the other hand, your business credit card has the potential to boost your personal credit score—as long as you use your business credit card responsibly, and as long as your credit card issuer reports that activity to the consumer credit card bureaus.

When you apply for a business credit card, you provide a personal guarantee that you’ll pay off your debt. This gives lenders a reason to check your personal credit before issuing you a business credit card. Lenders want some kind of indication that you’ll use your business credit card responsibly—and if you don’t have a lot of business credit built up, they’re going to use your personal credit as the primary indicator of your overall credit habits.

Why Should a Business Have a Line of Credit?

Lines of credit (LOCs) are perhaps the best option for small business owners. Here are some reasons why small businesses can benefit from a line of credit over a loan.

1. You have quick access to your cash.

Unlike a loan, a line of credit allows you to draw funds when you need it, rather than taking out one lump sum from the start. This is especially true with lines of credit that are powered online. When you’re in a pinch and you realize you need working capital, the ability to hop on a computer and initiate a loan from your available funds is priceless.

2. You pay back only what you’ve used, not the total amount approved.

Think of a line of credit similarly to a credit card: a lender gives you a line of credit, which you have access to whenever you need it. Let’s say you want to renovate your store. You estimate the total costs of being $35,000, and you’re approved for a line of credit for $40,000.

However, once you begin the renovating process, you find that the costs are much lower than expected (let’s say, only $20,000). You can take out just that $20,000, and pay back the interest on that amount, not the $40,000.

3. Cover your expenses anywhere, anytime.

With a line of credit, you can cover any unexpected expenses or any upcoming expenses you know you’ll need help with. Since you are not required to initiate a loan for the entire amount you are approved for, the rest of those funds are sitting there ready for you when you need them. This benefit allows you have the comfort and flexibility that traditional bank loans don’t offer.

4. Your line of credit can be unsecured.

Unsecured loans are a lot less risky for you and your business, and your credit score really comes into play on getting an unsecured loan. With an unsecured loan, you’re at less risk should you default on your payments. Defaulting only increases your rate in an unsecured loan whereas, in a secured loan, the lender is able to seize your assets (personal, business or both) in order to receive what they’re owed.

5. Cover those in-between costs.

When is the cost is too much to throw on a credit card but not large enough to justify taking a loan out, LOCs are great for covering those in-between amounts. For example, if you need to do maintenance on your truck for your company, it can sometimes be pricey.

In some instances, your credit card wouldn’t provide enough, but the cost doesn’t warrant taking out a loan. That’s where LOCs come into play. See how much the bill is and take exactly what you need.

6. Build your business’s credit.

If you’re looking to improve your business’s credit score, a line of credit can help you do so. Making your payments on-time reflects positively on your score and can help you receive a larger line of credit in the future.

7. Separate personal and business expenses.

One issue many small business owners face is keeping that divide between their personal expenses and their business expenses. With a line of credit dedicated to your business, you can smoothly create and track business expenses.

8. Help your short-term goals.

A line of credit can be used multiple times and is something you can get approved for before you need it. It doesn’t serve one specific purpose. A line of credit is great used as a short-term solution for different things such as marketing, renovations, buying inventory or even covering payroll.

9. Find lower interest rates.

Especially when you’re starting a new business, finding an affordable interest rate is crucial to all business owners. Lines of credit tend to carry lower interest rates as they aren’t interest-rate driven (unlike loans). However, these rates tend to be variable.

What is the Average Interest Rate on a Business Line of Credit?

Several factors impact the rates you pay on business lines of credit. Ultimately, it comes down to how the lender evaluates the amount of risk involved with your loan. Generally, they will look at:

  • Your credit history
  • Features of your loan
  • Characteristics of your business
  • Interest rates in the broader economy

Lenders want to see a consistent history of borrowing and repaying loans. For most small business owners and new businesses, lenders use an owner’s personal credit scores and require a personal guarantee. Over time, this establishes business-specific credit.

Lower-risk loans have lower interest rates. Risk levels can depend on factors like the amount of your loan and any collateral you pledge to secure the loan. Because lenders can take the collateral and sell it, pledging collateral reduces their risk.

Startups are risky to lend to, but if you have substantial revenue or have been in business for several years, you’re a less risky borrower.

Interest rates are often set at a “spread” above market interest rates. For example, your rate might be 3% above the London Interbank Offered Rate (LIBOR) or the prime rate. The spread would be the difference between the two. As market rates change, your rate will likely change.

A variety of financial institutions or government entities provide credit lines to businesses.

Are you curious about how much some of the most popular lenders charge? You’ll see several offerings below, but these might not be the perfect fit for your needs. To ensure that you get the best deal possible, shop among several lenders, including small banks and credit unions in your area.

Remember that the lowest advertised rates are only available for borrowers with the best finances, and that definition can vary from lender to lender.

Fundera is an online service that connects small businesses to a variety of lenders. Rates for credit lines range from 7% to 25%, with rates near the lower end if you have good credit.

Kabbage is a technology-based lender that provides short-term lines of credit. Pricing is quoted in terms of a “monthly Fee Rate” from 1.25% to 10%.

To estimate an annualized rate (if you’ll borrow year-round), you’d need to look at total fees throughout the year.

Bank of America is a standard “big bank” offering business lines of credit, including SBA loans and conventional loans. On unsecured lines of credit, advertised interest rates are “as low as” 4.50%. With collateral, the rate may be as low as 3.75% for prime borrowers.

Lendio works with numerous partners, including online lenders and traditional financial institutions. As you might expect with a wide variety of sources, rates range anywhere between 8% and 24% APR, depending on creditworthiness and other factors.

Where to Get a Line of Credit With Bad Credit

A personal loan for bad credit is the same as a standard personal loan but offers options for borrowers with credit scores below 580. The most popular of these loans are unsecured, which don’t require any collateral, although some lenders may offer secured loans.

When choosing a lender, you’ll want to look at several factors beyond the credit score requirement. The best ones have transparent pricing, including interest rates and fees, quick funding and approval times, a variety of repayment terms, and loans that can be used for multiple purposes.

1. Upgrade

Upgrade allows you to borrow as little as $1,000 with a credit score as low as 550, and you may get a lower rate if you’re approved with a co-applicant. The online application process is easy, and you can pre-qualify without hurting your credit.

2. Rocket Loans

If you need a loan fast, Rocket Loans can provide up to $45,000 as soon as the same day you apply. But the time it takes to receive your funds will depend on your bank and Rocket Loans’ ability to verify your information.

3. Avant

If you’re struggling to pay down multiple debts, Avant can help by consolidating them into a single monthly payment.

4. Navy Federal Credit Union

Navy Federal membership is limited to eligible members of the military and their families, but if qualified you can take advantage of excellent loan terms, quick funding, and high-quality customer service.

5. LendingPoint

LendingPoint charges a relatively low origination fee of 3.5% on average, and borrowers benefit from very few fees and no prepayment penalties.

6. Upstart

Unlike some lenders that require higher credit scores to get approved for a personal loan, Upstart works with eligible borrowers who have credit scores as low as 300.

How are Business Lines of Credit Payments Calculated?

Lenders have differing policies for setting payment amounts, but most use the average daily balance method for figuring finance charges. This makes calculating line of credit payments a straightforward task.

Calculating interest on line-of-credit payments is usually done using the average daily balance method. The lender figures the average balance during a billing period and charges interest that is a proportion of the annual interest calculated based on the number of days in the billing period.

Find Monthly Interest Percentage

Calculate the percentage interest for the billing period, which is called the periodic rate. Divide the annual interest rate by 365 and multiply by the number of days in the billing period. For example, if the annual rate is 7.3 percent and there are 30 days in the billing period, you have 7.3 percent divided by 365 and then multiplied by 30, so the interest rate equals 0.6 percent.

Calculate Average Balance of New Purchases

Multiply the amount of each purchase made during the billing period by the number of days left in the period when the purchase was made. Divide this amount by the number of days in the billing period. Add the results together. Suppose you made two purchases for $100 each, one with 20 days remaining and one with 10 days remaining. You have 20 times $100 divided by 30 and10 times $100 divided by 30. Adding these together equals an average daily balance for new purchases of $100.

Compute Average Daily Balance

Add the average balance of new purchases from Step 2 to the account balance at the beginning of the billing period to find the average daily balance for the line of credit. If the initial balance is $1,000 and the average balance of new purchases is $100, the average daily balance equals $1,100.

Calculate Line of Credit Payment Interest

Multiply the interest percentage for the billing period from Step 1 by the average daily balance. If the interest rate is 0.6 percent and the average daily balance is $1,100, the interest comes to $6.60. Add this amount to the ending balance and subtract your payment to find the beginning balance for the next billing cycle.

How to Get Business Line of Credit

While the application process varies depending on the specific lender, you can follow these general steps to get a business line of credit.

1. Decide How Much Funding You Need

When you apply for a business line of credit, you’ll have to determine how much credit you need. Available loan amounts depend on the lender but typically range from $2,000 to $250,000. Because you don’t pay interest on the full amount and only on what you use, it’s acceptable to ask for a higher limit than you’ll likely need—as long as you don’t get greedy and spend more than you can afford.

If you need access to more funds after you receive your initial credit line, you can request a line of credit increase. Depending on your business’s revenue and credit history, the lender may approve this request or ask for collateral—something of value it can repossess if you fail to repay—to secure the line of credit.

2. Check Your Eligibility

While there are several different factors that lenders consider, there are a few that are most vital, including:

  • Credit history. Your credit history illustrates the likelihood of you defaulting. While most lenders require a personal credit score of around 680, some lenders accept scores as low as 580 to 600. However, the higher your score, the better chances you have at securing a lower interest rate or higher loan amount.
  • Business revenue. Most lenders have a minimum annual or monthly business revenue requirement. This varies depending on the specific lender but can range anywhere from $10,000 per month to $250,000 per year. Online lenders typically have less stringent revenue requirements compared to traditional banks.
  • Time in business. Most banks require that a business has been in operation for at least one to two years, but some online lenders may only require six months. The longer the business has been around, the more stable it looks to potential lenders—and the lower interest rate you may receive.

3. Research and Compare Lenders

Once you understand how much financing you need and your eligibility, it’s time to research lenders that match up with that information. Be sure to compare different lenders’ maximum credit limits, repayment terms, minimum requirements and APR ranges, too.

There are a few different types of institutions that you can apply through:

  • Banks and credit unions. Traditional lenders, such as banks and credit unions, are typically best for business owners with high credit scores, lengthy business histories and substantial annual revenue. New businesses may not qualify for loans through these institutions.
  • Online lenders. Online lenders are best for business owners who may have lower credit scores, shorter business histories and lower business revenue. Because online lenders typically approve riskier prospective borrowers, interest rates may be higher than banks and credit unions.

4. Gather Required Documentation

Once you find your preferred lender, it’s time to gather the necessary documents to prepare for the formal application process. This will usually include the following:

  • Personal and business tax returns
  • Business licenses
  • Articles of incorporation
  • Personal and business bank statements
  • Profit and loss statements
  • Financial statements
  • Business plan
  • Building lease

If you’re unsure what documents are needed, contact the lender before applying.

5. Submit Your Application

Lastly, submit your application online or in person. Turnaround times vary by lender, and it can take as little as five minutes or as long as several days to get a decision. Your lender may also require you to provide additional documentation after reviewing your application.

Common information your lender may ask for includes:

  • Your name
  • Business name
  • Social Security number (SSN)
  • Desired loan amount
  • Loan purpose
  • Business Tax ID
  • Annual revenue

If your loan is approved, a lender will send you a loan agreement to sign before issuing your line of credit you can draw from.

Business Line of Credit for New Business

A business line of credit gives you access to cash whenever you need it and is an extremely flexible financing option. This type of loan allows you to draw cash from your credit limit as you need it, and only pay interest on what you use.

With revolving lines of credit, more cash will become available as you pay it down. Unlike selling equity, getting a small business loan allows you to maintain business ownership, profits and full control. Business lines of credit are the perfect financing tool when your business is in growth mode and you need access to funds.

 You can also use it to bridge cash flow gaps during seasonal slumps, or as a rainy day fund. There are no restrictions on how you can use it—you can use a business line of credit to cover any costs or opportunities you face.

Business Line of Credit Secured

With a secured business line of credit, the lender asks the borrower to pledge their assets against the loan as collateral. Since this is a temporary liability, the lender may accept inventory or accounts receivable as collateral.

They probably will not ask for significant assets like equipment or real estate. If the business fails to pay off the business line of credit loan, the lender can take the collateral.

Business Line of Credit Companies

Since repayment terms and eligibility requirements vary by lender, the best line of credit for your business will depend on your company’s unique needs and financial standing. Here are the best options.

1. OnDeck

OnDeck was founded in 2006 and has since been a leading provider in the business lending space, offering both term loans and lines of credit. Today, they have extended $14 billion in funding to small businesses.

OnDeck’s business lines of credit range from $6,000 to $100,000 with a 12-month repayment term that resets after each withdrawal.

Note: OnDeck does not lend to businesses in Nevada, North Dakota or South Dakota. What’s more, while it lends to over 700 industries, there are some industries it cannot serve.

2. Kabbage

Kabbage from American Express launched Kabbage Funding in December 2021. With the backing of American Express, Kabbage is able to offer a broader set of cash flow management tools to small businesses.

Business owners can apply for business lines of credit through Kabbage between $2,000 and $250,000. Repayment terms range from six to 18 months.

We also confirmed with a Kabbage representative that customers are assigned monthly fees based on their eligibility and pay monthly fees if they carry a balance. Six-month term lines of credit charge fees between 0.25% to 3.50%; 12-month terms charge fees of 0.25% to 2.75%; and 18-month terms charge fees of 0.25% to 2.50%.

In addition to its line of credit, Kabbage provides other tools beneficial to small business owners, including its own mobile app that provides comprehensive cash flow insights.

3. BlueVine

BlueVine is a financial technology company that provides financing solutions to small businesses nationwide. It specifically specializes in business lines of credit and checking accounts. As of December 2021, BlueVine no longer offers invoice factoring.

Startup owners looking to access a line of credit on an as-needed basis can receive funds between $6,000 and $250,000. Through BlueVine’s Flex 6 payment structure, startups make weekly payments over 26 weeks. What’s more, after 45 days of payment on Flex 6, you may be eligible for a credit line increase. BlueVine also offers its Flex 12 structure, but it requires at least two years in business, so it’s not suited for most startups.

BlueVine also charges weekly or monthly fees for its line of credit. Standard pricing is 1.7% per week or 7% per month for line of credit draws.

Note: BlueVine’s line of credit is available in most U.S. states except North and South Dakota, Puerto Rico and U.S. territories.

4. Fundbox

Fundbox is an AI-powered business lending platform that speeds up the application, decision-making and funding process. It offers decisions within three minutes and funds as soon as the next business day.

Prospective borrowers have two business financing options through Fundbox. Business owners can apply for revolving business lines of credit up to $150,000 with repayment terms of 12 or 24 weeks. Your available credit goes back up as you repay your line of credit.

Fundbox also offers its Insights Advantage program, which lets borrowers view their combined balances and cash flow predictions in one place when they connect multiple business bank accounts. It also sends alerts when Fundbox predicts that a borrower’s cash flow may fall below the set threshold.

5. Wells Fargo

Wells Fargo offers three business lines of credit—unsecured line of credit, Small Business Advantage and Prime Line of Credit. We are highlighting its unsecured line of credit as its best option for most small businesses but have included a brief summary of the other two options.

Wells Fargo’s unsecured business line of credit is generally best suited for existing Wells Fargo customers or small business owners who want to supplement cash flow, cover daily expenses, expand or jump on unexpected business opportunities through a traditional bank compared to an online lender.

Through Wells Fargo’s unsecured line of credit, business owners can access credit lines between $5,000 and $100,000 with payments due monthly. Unlike other lines of credit on our list, Wells Fargo charges an annual fee of $95 or $175, waived for the first year. Lines of credit between $10,000 and $25,000 charge a $95 annual fee while lines of credit between $25,001 and $100,000 charge a $175 annual fee.

Wells Fargo also offers its Small Business Advantage line of credit (backed by the U.S. Small Business Administration), which is suited for businesses in operation for less than two years. However, credit line amounts are between $5,000 and $50,000.

Further, established businesses with annual sales between $2-5 million can apply for a Prime Line of Credit, which is a secured line of credit between $100,000 and $500,000. This, however, does not cater to most small businesses.

Business Line of Credit no Credit Check

If you’re looking for a loan with no credit check or with lower than usual credit requirements, below are some popular options you may want to check out. As with any type of financing, however, it’s important to compare rates and terms and vet any lender you’re thinking about working with.

1. PayPal Working Capital

PayPal Working Capital skips the credit check. Not only is credit not considered, you also don’t have to worry about an inquiry added to your credit report. In order to qualify, however, you do need consistent sales through PayPal. Payments are automatically deducted from your sales, and you get to set the rate at which they’re deducted. The minimum repayment term is 5% to 10% of sales every 90 days.

Rather than accruing ongoing interest, you’re instead charged a transparent flat fee so you know exactly how much the financing will cost you. Loan amounts are based on revenue through your PayPal account. There’s no application or personal guarantee, and if approved, you’ll receive funding within minutes

2. American Express Business Loan

The business loan program from American Express offers a streamlined application process for preapproved American Express Business Card members. So while there’s a soft credit check involved and considered as part of the process, it’s an easier application than starting a cold relationship with a bank you’ve never worked with before. Here’s how it works:

  • You can apply if you’ve already had a business credit card with American Express for at least one year
  • Your credit won’t be impacted by applying, but American Express may deny applications based upon creditworthiness and other factors
  • Loans start from $3,500 and go up to $75,000
  • The repayment term could be between six months and 36 months, with rates ranging from 6.98% to 19.97% APR

3. FundBox

FundBox offers a business line of credit. There is a credit check involved, but the minimum personal credit score is just 600. The business must be at least six months old and have at least $100,000 in annual revenue.FundBox’s application process is unique and places a greater emphasis on revenue than is typical. When you apply, you’ll link your business bank account as well as your accounting software for FundBox to review.

A decision is typically made within minutes.Then you’re ready to make withdrawals from your line of credit as your business needs the funds. You’ll see the fee you’re going to be charged before you make the withdrawal. Borrowers have a variety of flexible repayment options.

4. FundThrough

FundThrough offers invoice factoring and does not require a credit check. Small business invoice factoring differs from a traditional business loan in that it provides you with an upfront payment of your uncollected invoices from customers.Invoices must be less than 90 days old to be eligible for funding on FundThrough’s platform.

FundThrough can fund your outstanding invoices within one business day and may offer unlimited funding based upon the size of your invoices.FundThrough determines a funding limit based upon your business banking account and cash flow. You can get paid the invoice amount minus a 2.5% monthly fee, or you can make repayments in 12 weekly installments with a 0.5% weekly fee.

5. Square Capital

Square Capital offers no credit check business loans for companies that use Square for their daily card sales. Approval is based on those card sales, with loan amounts starting as low as $300 and maxing out at $250,000. Instead of interest, borrowers pay a flat fee. Payments are made as a percentage of your daily card sales, so you’re not overextended during slower periods. A minimum payment must be met every 60 days.

Eligibility for a Square small business loan is based on a variety of factors, including your company’s payment processing volume, account history, and payment frequency. Square Capital boasts near-instant approval decisions and no impact to your credit score. There’s also no personal guarantee attached to the loan.

6. Shopify Capital

Shopify Capital offers loans and merchant cash advances to eligible Shopify merchants in the United States. Eligible Shopify merchants can use these loans and merchant cash advances to finance business needs and cover unexpected expenses, among other business purposes. Not all Shopify merchants are eligible for Shopify Capital funding.

Those eligible for a Shopify Capital loan or advance would receive an email or message notifying them of their eligibility. Only then would you be allowed to apply for Shopify Capital funding.Merchants who take a Shopify Capital loan or advance must pay fixed fees on the money borrowed. Shopify Capital takes a percentage of a merchant’s daily sales until the merchant repays the debt in full.

Business Line of Credit Fees Tax Deductible

Wherever you are on your financing journey, it’s important to understand the tax implications of borrowing against a line of credit. For example, while a line of credit isn’t recognized as income for tax purposes (since the money you borrow is paid back), there are several tax write-offs and considerations to keep in mind.

Any funds drawn against a business line of credit aren’t considered a cost to your business and are not eligible for a deduction.

You can deduct interest payments made on funds you borrow. To do this, you must prove that the deduction is both an “ordinary and necessary” business expense. According to the IRS: “An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”

Using a line of credit to purchase equipment or inventory, for example, would all fall into the category of an ordinary and necessary business expense.

If you use your line of credit to purchase new equipment for your business, you may be able to take the bonus depreciation deduction on the equipment.

Most types of tangible property (except, land and inventory), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. To be eligible, the asset must have a useful life of more than one year. The depreciation is then written off over the useful life of that asset.

You can start depreciating once the asset is in use and stop once the cost is fully recovered or you no longer use it in your business. The bonus depreciation deduction is claimed as a business expense on Form 4562.

Talk to your tax advisor about claiming this deduction. With the passing of the Tax Cuts and Jobs Act of 2017 (TCJA), the bonus depreciation percentage has expanded from 50% to 100% and the assets that qualify for the deduction have also changed.

Amazon Business Line of Credit Requirement

The Amazon Business Line of Credit is best for established businesses with at least two years of credit history that regularly shop on Amazon.

There are a few types of businesses that are best-suited to these lines of credit:

Established businesses

Synchrony Bank, the financial institution that manages the Amazon lines of credit, requires applying organizations to have been in business for more than two years. If you’ve been in business less than two years or don’t have a business credit history, then you’ll have to provide a personal guarantee — meaning you’ll cover the bill if the business can’t.

Businesses that frequently shop at Amazon

This Line of Credit can only be used for purchases on Amazon Business or Amazon.com. As a result, you’ll only get the most of the credit line if you often shop on Amazon.

Businesses that can pay their bill in full

Amazon’s business Line of Credit is currently only available with pay-in-full terms (more specifically, they have 55-day payment terms). If you need more time to pay off your purchases, then you might be better suited to looking at a credit card.

To apply for an Amazon Business Line of Credit, visit the credit line page on Amazon’s website and click “Apply Now.” You can learn more about the credit line, and when you’re ready to apply, you’ll be redirected to the application form with Synchrony Bank.

To apply, you’ll have to provide the following information:

  • Business name
  • Business address, phone number, and email address
  • Business type
  • Annual revenue
  • Tax ID number
  • Information about the authorized representative or owner

When you fill out the form, you’ll be given the option to provide a personal guarantee. The personal guarantee is optional, but it may be required if your company has been in business less than two years or doesn’t have an established credit history.

PNC Business Line of Credit Requirement

Some lenders will require a copy of your business plan, as well as business projections. As with most applications, it’s always best to have everything prepared and organized in advance. The documentation requirements on a business LOC are comprehensive, and typically include:

  • Business and personal income tax returns for at least the last two years
  • Year-to-date financial statements
  • Business bank statements covering anywhere from six to 24 months
  • Business license (if required)

Bluevine Business Line of Credit Requirement

Bluevine provides funding for small and medium businesses to help fund growth and deal with unpredictable cash flow. To qualify for a line of credit with Bluevine, you must have been in business for at least 6 months, have a business revenue of at least $10,000 per month, not have a bankruptcy within the past year, and the guarantor must have a personal credit score of 625 or higher. Additional eligibility requirements apply for larger lines of credit.

Non- Eligible States:

  • North Dakota
  • South Dakota
  • Puerto Rico
  • US Territories

Non- Eligible Industries:

  • Gambling
  • Pornography and paraphernalia
  • political campaigns
  • Legal and illegal substances (inc. medicinal marijuana) and paraphernalia
  • Firearms and paraphernalia
  • Financial institutions and lenders
  • Donation-based non-profits
  • Auto sales Industry 

Citibank Business Line of Credit Requirement

Citibank, and frankly most other big banks, don’t like working with small businesses. If you’re a small business owner, you’ll have to jump giant hurdles to even get the most basic consideration.

It is hard to get a Citibank Business Line of Credit. Unless you are running a business with over $10 million in yearly sales, have a credit score over 680, and over three months to wait for loan approval, working with Citibank will be a waste of your time.

A Citibank business Line of Credit and other big banks have a very high bar of entry and typically only want to deal with established businesses. When it comes to you, the small business owner and backbone of America’s economy, well they don’t consider you worth the time.

While it’s understandable that huge banks want to maximize their profits with the least work, small business owners need and deserve financing resources too.

Citibank takes their time when it comes to business loan applicants and loan approval. On top of the time, it takes you to prepare the documents you need, you’ll end up waiting 2-3 months to hear back from them about whether or not you qualify for a loan or other financial services and each bank you apply to will want their own application and documents. If you’re in no rush, this is fine. If you’re a small business owner with pressing needs, this simply won’t cut it. You can find much more agreeable waiting times elsewhere.

Unsecured Business Line of Credit Requirement

Most business owners looking to get a line of credit prefer this option because the lender does not require any assets as collateral. Lending funds without holding collateral is riskier for the lender, which means that there is typically a higher bar to meet to have a chance of getting approved.

To get approved, you will probably need to prove that you have good personal credit, good business credit, and a track record of generating revenue. Unsecured business lines of credit are often given for lower limits and at higher interest rates.

Kabbage Business Line of Credit Requirement

Kabbage’s straightforward eligibility requirements are one of the things we like about the small business lender: You’ll need a personal credit score of at least 640 to qualify for a line of credit up to 150,000.

Kabbage’s APRs start lower than with some other lenders and Kabbage has a minimum credit score requirement of 640, so it can be a good source of funding for small business owners with fair credit.

Kabbage offers borrowers a line of credit for businesses. However, if you can afford to shop around, you should evaluate other lenders to see if you can qualify for a lower rate. Kabbage is also not suitable for businesses that want a term loan or more than $150,000 in funding.

To be eligible to apply for a small business line of credit from Kabbage, you must meet the following criteria:

Credit score: 640 or higher

Time in business: One year or more

Annual revenue: $50,000 in annual revenue or more

Kabbage will also consider your business’s bank accounts to approve or reject your business.

How to Get Business Line of Credit for New Business

Applying for a business line of credit is extremely easy. Most business lenders allow you to apply for funding online, so you don’t have to set up an in-person meeting.

Online lenders want to see a complete a picture of your business’s operations. Below, you’ll find examples of documents that financial institutions might require:

  • Personal and business tax returns
  • Financial statements from your business checking account
  • Business registration documents
  • Credit approval
  • Annual revenues
  • Business plan that includes information on your time in business, products and services, and industry.

For a new business without significant operating history, it’s important to provide as much financial information as possible. Include any records you have of past transactions, such as invoices paid to vendors, or outstanding accounts receivables. Remember that your credit line application should convince the creditor that your business will be able to responsibly repay its debts in full and on time.

Small business lines of credit come with varying repayment terms, interest rates, credit limits, and application processes. As a new business owner, choosing the right one may help your chances of being approved. This is especially true if you have no prior business experience.

Generally, business lenders prefer to lend money to business that have been open for at least 6 to 12 months. In addition, they’ll also want to see the following:

  • Steady cash flow
  • Long financial history
  • Strong credit history
  • Business longevity

However, if the line of credit provider sees that you have a track record of responsibly paying off debt and managing your money, you may be able to qualify as a startup owner.

Applications from new entrepreneurs aren’t doomed; you can improve your chances of getting approved for a business line of credit the same way you would for any other kind of small business loan. One way, for instance, is by putting up collateral; this is called a secured line of credit.

In this case, collateral doesn’t have to be a large asset, such as a home, vehicle, or equipment. For a short-term product like a business line of credit, you may be able to pledge alternative sources of cash. For example, a lender may allow you to pledge the value of your accounts receivables. This is known as invoice financing.

Another option is to build business or personal credit before applying for a credit line or other type of financing.

For example, paying off business credit cards on time signals to lenders that your business can use credit responsibly and doesn’t have significant debt. Improving your personal credit score can also help, especially if the funder performs personal credit checks in the application process.

By waiting to apply for additional working capital until your business is established, you may be able to pursue an unsecured business line of credit instead. Most likely, if you prove that your finances are solid and that you’ve been able to maintain them, you won’t need to submit collateral.

How to Apply for Business Credit for New Business

1. Incorporate your business

Even though you may be incorporated when you’re reading this, it deserves a mention. With sole proprietorships and general partnerships, the business is legally the same as the owner. Therefore, there can be no separation of business credit history from personal. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).

2. Obtain an EIN

An EIN (federal tax identification number) is basically a social security number for a business. It is required on federal tax filings and is also required to open a business bank account in the name of the corporation or LLC. In order to comply with IRS requirements, many larger businesses also require an EIN from their vendors in order to pay them for services provided.

3. Open a business bank account

Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card (see below) for many financial transactions, be sure to pay the credit card bill from your business checking account.

4. Establish a business phone number

Whether you use a landline, cell phone, or you use VoIP, have a separate number for your business and in your business’ legal name. List that number in the directory so it can be found.

5. Open a business credit file

Open a business credit file with all three business reporting agencies: Experian, Equifax, and TransUnion.

6. Obtain business credit card(s)

Obtain at least one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.

7. Establish a line of credit with vendors or suppliers

Work with multiple vendors/or suppliers (at least five for example) to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.

8. Pay your bills on time

Perhaps it should go unsaid, but be sure to pay your bills on time. Like with your personal credit, late payments will negatively impact your business credit.

How Much is a Business Line of Credit?

If your business is looking for an unsecured business line of credit, there are many lenders in the market. For example, credit unions, online banks, online lenders, commercial banks and community banks. Credit limits might be as low as $5,000 and as high as $500,000. On the low end, you would most likely be dealing with smaller banks or online lenders, since banks rarely go as low as $5,000.

If the business is less than two years old, certain banks may approve a business line of credit in partnership with the Small Business Administration, or SBA. The SBA CAPLine program provides businesses that meet its requirements with four different business lines of credit for their temporary working capital requirements.

How to Get Approved for a Line of Credit With Bad Credit

Finding an affordable bad credit loan can be a challenge, but there are a lot of options. Diligence will be rewarded. The loan could come from your regular bank, but more affordable interest rates and flexible qualifying requirements probably can be found with these options:

Credit Unions

Think of credit unions the way you would a small community bank from years ago. The most promising aspect of a credit union loan is the interest rate ceiling of 18%, which applies to anyone, regardless of their credit score. A similar loan from a bank could run you as much as 36% interest.

A credit union may be willing to look beyond a poor credit history and make a judgment based on your character and your promise to repay. A veteran of the armed forces might want to approach the Navy Federal Credit Union or PenFed Credit Union. A teacher or government worker might check into the State Employees Credit Union or Schoolsfirst Credit Union.

Friends and Family

This is a great place to find low interest, easy repayment terms, but also is dangerous from a relationship standpoint. Nobody wants Uncle Bob banging on the door for his money. But this kind of borrowing makes a lot of sense from a financial and loan-anxiety standpoint.

Family and friends aren’t likely to put you through a grueling qualifying process and probably would cut you some slack on the interest rate, if they charge one at all. However, failing to repay to a relative or close associate can poison relationships.

Treat any loan from someone you know as if it were an important business transaction between you and a stranger. Create a written contract that includes the loan terms and interest rate, and what will happen if you cannot repay the debt.

Get a Co-Signer

If you know someone with good credit ask them about co-signing for a bad credit loan. With a qualified co-signer, the lender will set the loan terms based on the credit score of the person with good credit, who will then be equally responsible for repayment.

All payment information will be recorded on both your credit report and your co-signer’s, so if you default on the loan, or you’re late with payments, you both suffer. If you make timely payments, your own score will improve, making it easier to obtain future loans without a co-signer.

Home Equity Loan

If you have equity in your home, you can apply for a home equity loan or home equity line of credit (HELOC). Your home is used as collateral, and home equity loans can be obtained regardless of your credit score. The interest rate is usually low, because the loan is secured by the home. Also, the interest you pay on a home equity loan is usually tax-deductible.

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It is important to remember that tapping your home equity puts your property in jeopardy, if you don’t repay the debt. But if you are disciplined and have a reliable income, it is an inexpensive way to borrow from a reputable lender.

Peer-to-Peer Lending

Peer-to-peer lending, also known as P2P lending, has been around since 2005. It’s an online platform that allows you to get a bad credit loan directly from another individual or group of individuals rather than from an institution. Potential borrowers post a loan listing on various peer-to-peer websites, indicating the amount needed and what it’s for. Investors review the loan listings and choose borrowers they wish to fund.

Your credit score is still a factor, but since an individual investor has much greater leeway in how factors are weighted, these loans are often more readily available for people with bad credit. Lending standards are significantly more lenient and interest rates are usually lower than those offered by traditional lenders. In addition, peer-to-peer websites help evaluate risk for the lender, while verifying the lender’s credentials for the borrower.

Online Personal Loans

These lenders are essentially banks that don’t have offices. They do their work online and offer bad credit loans for things like debt consolidation and home repairs. Their primary appeal is they work fast. They can make decisions in minutes and deposit funds in an account in a few hours or days. Many have no application fee or pre-payment penalty.

Online personal loan applications are simple and easy to fill out. Credit scores are only a part of the decision-making process so this could be an appealing option if you have bad credit or no credit. In fact, some personal loan lenders have their own credit-score model and don’t use FICO scores. Other factors considered include whether you have a college degree, the school your degree came from and your employment history.

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