Business Line of Credit

What Is a Business Line of Credit?

A small business line of credit provides flexible access to cash as needed, allowing you to draw from your total credit limit for any business purpose and only pay interest on what you use.
With a revolving line of credit, more funds become available as you pay down your balance. Unlike selling equity, this type of financing lets you maintain full ownership, profits, and control of your business.
You can use it to bridge cash flow gaps during seasonal slumps or as a rainy day fund, with no restrictions on its use. A business line of credit can cover any costs or opportunities you encounter.
Apply Now

Essential Requirements for Obtaining a Business Line of Credit

Wondering how to apply for a business line of credit? Different lenders have various qualifications, so your eligibility can vary depending on where you apply. Applying through a marketplace allows you to explore options from multiple lenders with a single application.
Banks and credit unions typically have more stringent qualifications, making it difficult to qualify if your business doesn’t have a perfect financial record. Even if your application is denied at a bank, you might still qualify based on your annual sales with an online lender.
Online lenders are a better option for securing a fast business line of credit. Their expedited underwriting processes can potentially provide funds within 24 hours.
Marketplaces like National are less demanding, focusing more on your business and opportunities rather than history and credit. Applying and qualifying for a business line of credit through our marketplace is straightforward and not time-consuming.

Business Line of Credit Application

Here’s the documentation you’ll generally need:

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

Some lenders may require additional documentation to determine your eligibility, but the above list includes the most commonly requested items.
Apply Now

How Does a Business Line of Credit Work?

Business lines of credit function like credit cards but are structured to better suit small business owners. They offer tax advantages since you can write off interest on a business credit line, unlike with a personal credit card.

How They Work

Once you qualify for a business line of credit, you’ll receive a total credit limit. You can draw as much or as little as you need from that limit in multiple installments, with no obligation to use the full amount.

You manage this online by logging into an account and transferring funds from your credit line to your business bank account.

As you repay your balance, additional funds become available for use. You only pay interest on the amount you draw, not the full credit limit. However, be aware that some lenders may charge a non-utilization fee if you don’t use the line. Always ask for clear information about any fees before signing an agreement and avoid any agreements without transparent terms.

Choosing the Right Line of Credit

The best business line of credit is one that fits your business and its future goals. Work with a reputable, transparent lender to ensure the financing aligns with your objectives and imposes no restrictions on your growth.

Documentation Needed

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

Some lenders may require additional documentation, but the above list includes the most commonly requested items.

Apply Now

How Does a Revolving Line of Credit Work?

Unlike small business loans, revolving lines of credit work by allowing you to continue accessing additional funds as you pay your balance down and require more cash. In other words, it is a type of loan in which the user can borrow up to their credit again once the debt is repaid.

Some business lines of credit are revolving, while others aren’t. When you discuss the terms of your agreement, be sure to ask questions and confirm whether or not your line of credit is revolving. Revolving lines of credit are the fastest and easiest way to access additional cash as your business grows. Once you pay down part of the balance, you can draw more cash without reapplying. It’s simple, fast, and easy, and your working capital won’t be limited to your checking account.

For example, say you qualify for a $100,000 line of credit. You borrow the full $100,000 and use the cash to grow your business. You then pay down $50,000 using the revenue you generate, putting both your balance and credit limit at $50,000. With $50,000 paid down, you now have the option to borrow an additional $50,000. There’s no set end date, either. As long as you keep your credit line active or continue drawing and paying it down, you can utilize a LOC for months or even years. If you’re not actively using it, though, your small business line of credit may expire.

A top business line of credit option is one that has exactly what you need. If you aren’t satisfied with the first offer, don’t worry – there’s always a better deal out there.

Apply ow

Small Business Credit Line Benefits

A business line of credit can be a powerful tool in your back pocket. The flexibility allows you to draw funds whenever you need them and stay one step ahead of the latest challenge in your business – a priceless opportunity for any entrepreneur. Here are a few of the many benefits of leveraging a business line of credit in your operation:

• Fast access to cash
• Only pay interest on what you draw
• Might not need to offer collateral
• Manage your working capital, short-term projects, and other expenses
• Strengthen your business credit

A business line of credit for new businesses can change the way they grow. With flexible access to capital, you can build out necessary areas of your business without jeopardizing cash flow.

Term loans, SBA loans, and other traditional financing products provide you with a set amount of money that you must repay throughout the term outlined by your lender. If you wind up needing more than you originally anticipated, you’ll have to take out an additional loan on top of your previous financing, which can quickly become difficult to manage.

A business line of credit is a way around this challenge – the structure allows you to draw as much as you need from your total credit line without having to worry about taking out additional financing to afford your growth plans.

Apply Now

Lines of Credit Vs. Small Business Loans

What’s the difference between a line of credit and a small business loan? Both provide your business with the cash you need to grow, but the way these products are structured is different.

When you apply for a small business loan, you receive the full amount you qualify for in one lump sum deposit. A line of credit, on the other hand, offers more flexibility than most loans and cash advances. Instead, you have the option to draw cash in increments and continue drawing more until you reach your credit limit.

Typically, lines of credit have lower interest rates and closing costs, which can make them more cost-effective. Small business loans are the better choice when you’re taking on a huge project with defined expenses. Lines of credit can be better as a flexible backup to cover unexpected costs or as a backup for your bank account.

Choosing a business line of credit over another financing solution could also help you save money on interest. If you were to secure a term loan to meet your needs, you’d have to pay interest on the total borrowed amount, whereas you only pay on what you use with a business line of credit. Plus, making consistent, timely payments on your credit line will work to strengthen your business credit score, which is a priceless opportunity that all entrepreneurs should take advantage of.

How to get a business line of credit? Check that you meet the necessary requirements, then reach out to the experts at National Business Capital to explore the options you qualify for.

Apply Now

Secured Vs. Unsecured Business Line of Credit

A business line of credit can either be secured or unsecured. The difference depends on whether or not your lender requires you to put up collateral.

Secured Lines of Credit:

• Backed by collateral
• Higher credit limits
• Lower interest rates
• Lender can seize the collateralized asset if borrower defaults on payments

Unsecured Lines of Credit:

• No collateral necessary
• Higher interest rates
• Lower credit limits
• Difficult approval process

Some lenders require that borrowers put up collateral, such as real estate, receivables, inventory, equipment, or their home, as a method of protecting themselves from financial loss if the borrower defaults. However, putting up your home as collateral puts both your personal and business lives at risk.

For this reason, it’s usually not a wise choice. Backing your financing with collateral simply gives the lender confidence in the event you default. Years ago, it was difficult for a small business owner to qualify for an unsecured line of credit, especially through traditional lenders.

Through the new world of online lending, small business owners can qualify for multiple unsecured lines of credit options and compare rates. While they don’t require collateral, unsecured options may have slightly higher rates due to the lender’s increased risk.

By putting up collateral and opting for a secured line of credit financing, you may qualify for a higher approval. That being said, you can usually still qualify for a competitive unsecured line of credit based only on your annual sales – even with personal credit challenges.

Apply Now

Business Credit Cards Vs. Business Line of Credit

Fundamentally, credit cards and lines of credit are similar – they give you the ability to handle expenses when you need to.

Both financing products only charge interest on what you use rather than your total credit limit, but the interest is structured differently. A business line of credit is the ideal option for your small business if you’re growing or solving challenges and you need a lower-cost solution.

Usually, only about 3% of your minimum monthly credit card payment goes toward principal. Over time, this can add up to be quite expensive. Lines of credit typically have lower interest rates and better amortization schedules. Overall, this normally adds up to a lower total cost.

Credit cards are primarily transactional, meaning you can only use them to make purchases. It’s possible to borrow cash using a credit card, but this can be expensive. On the other hand, lines of credit give you the ability to instantly draw cash as you cover expenses and manage working capital.

If you’re debating between getting a credit card vs. a business line of credit, you should also consider fees. Some credit cards involve hefty interest rates. In most cases, these costs will outweigh the draw fees you may or may not pay with line of credit financing. If you opt for a business line of credit, you won’t accrue rewards like you would with a credit card.

However, you can maximize the value of both financing options by spending with your credit card to accumulate rewards, then paying the balance down with a line of credit. Using both has its advantages, but you should make sure that you’re choosing the best business line of credit and credit card for your business and where it’s headed by weighing out your options beforehand.

Apply Now