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Business Line of Credit: How It Works and Best Options

Steve NicastroApril 27, 2020

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Online lenders offer business lines of credit up to $250,000 for short-term financing needs.

A business line of credit is a type of small-business loan that provides flexibility that a regular business loan doesn’t. With a business line of credit, you can borrow up to a certain limit — say, $100,000 — and pay interest only on the portion of money that you borrow. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. A line of credit works similarly to a credit card.

Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense.

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Our picks for

Business lines of credit up to $100,000

Fundbox, StreetShares and OnDeck offer business lines of credit up to $100,000 for short-term financing needs.

Fundbox - Line of credit

Fundbox - Line of credit

Est. APR

10.10 - 79.80%

Min. Credit Score

550

Pros

  • Cash can be available by the next day.
  • Low minimum credit score requirement.

Cons

  • Rates are high compared to traditional banks.

Qualifications

  • Minimum credit score: 550.
  • Minimum time in business: 3 months.
  • Minimum annual revenue: $50,000.
Read full review
Fundbox offers a business line of credit to fill a cash-flow gap, and qualifying is easier than with other lenders.
OnDeck - Line of credit

OnDeck - Line of credit

Est. APR

13.99 - 63.00%

Min. Credit Score

600

Pros

  • Cash can be available within the same business day.
  • Requires low minimum credit score.
  • Less paperwork than most lenders.

Cons

  • Fixed-fee structure means early repayment will not save interest.
  • Requires weekly repayments.
  • Requires personal guarantee.

Qualifications

  • Minimum credit score: 600.
  • Minimum time in business: 3 years.
  • Minimum annual revenue: $250,000.
  • No bankruptcies in the past 2 years.
Read full review
OnDeck offers a fast line of credit for small-business owners with less-than-stellar credit who need to manage cash flow or buy inventory.

Our picks for

Business lines of credit up to $250,000

Kabbage and BlueVine offer fast funding for borrowers, with max borrowing amounts of $250,000.

Kabbage - Line of credit

Kabbage - Line of credit

Est. APR

24.00 - 99.00%

Min. Credit Score

560

Pros

  • Financing up to $250,000 available within a few days.
  • Accepts low credit scores.

Cons

  • Rates are high compared to other online lenders.
  • Must have online checking or PayPal account to verify cash flow.
  • Fixed-fee structure means early repayment does not save interest.

Qualifications

  • Minimum credit score: 560.
  • Minimum time in business: 1 year.
  • Minimum annual revenue: $50,000.
Read full review
Kabbage provides fast loans for business owners with bad personal credit, but rates can be high.
BlueVine - Line of credit

BlueVine - Line of credit

Est. APR

15.00 - 78.00%

Min. Credit Score

650

Pros

  • Cash can be available within 12 to 24 hours.
  • Multiple products for different financing needs

Cons

  • Short repayment term results in higher payment amounts.
  • Requires personal guarantee.
  • Not available in North Dakota, South Dakota or Vermont.

Qualifications

  • 6-month line of credit
  • Minimum credit score: 650.
  • Minimum time in business: 36 months.
  • Minimum annual revenue: $100,000.
  • 12-month line of credit
  • Minimum credit score: 650.
  • Minimum time in business: 3 years.
  • Minimum annual revenue: $480,000.
Read full review
BlueVine's line of credit provides fast working capital for short-term borrowing needs.

Easily get real, personalized small business loan rates to compare — not just ranges or estimates.

It’s free and won’t affect your credit.

Get Started

on Fundera's website

Summary of Business Line of Credit: How It Works and Best Options

How a business line of credit works

A business line of credit differs from a term loan, which provides a one-time lump sum of cash upfront, repaid over a fixed period, or term.

With a line of credit, you can keep reusing and repaying it as often as you’d like, as long as you make payments on time and don’t exceed your credit limit. Most lenders allow you to repay your full balance early to save on interest costs.

Line of credit borrowing limits — ranging from $1,000 to $250,000 — are smaller than a term loan.

Business lines of credit with lower credit limits are typically unsecured, which means collateral such as real estate or inventory is not required.

How to qualify for a business line of credit

Most traditional lenders, such as banks, require businesses to have strong revenue and at least a few years of history to qualify for a line of credit. Larger lines of credit may require collateral, which can be seized by the lender if you fail to make payments.

To apply, lenders typically require the following documentation: personal and business tax returns, bank account information and business financial statements, such as profit-and-loss statements and a balance sheet.

Online business lenders typically have looser qualifications than banks. However, these lenders are also likely to charge higher rates than banks and may have lower credit limits.

At a minimum, you’ll need at least six months in business and $25,000 in annual revenue to qualify for a business line of credit. Although some lenders don’t set a minimum credit score, borrowers most likely will need a score of 500 or higher to qualify.

Business credit cards

Business credit cards are also lines of credit, but differ from a traditional business line of credit in several ways.

A business line of credit provides a higher credit limit, may be secured by collateral and provides actual cash to your bank account when you make a draw. You can get cash through a business credit card, but you’ll be charged fees and a higher APR to do so. Other common fees for business credit cards include annual fees and late-payment fees.

Business credit cards work best for smaller ongoing expenses and for newer businesses without established finances, while a business line of credit works best for larger ongoing expenses and more mature businesses.

Just like personal credit cards, business credit cards can provide rewards or cash back for spending. Rewards are typically related to business expenses, such as office supplies, gas, internet and cable. They may also offer 0% interest promotions, which allow you to pay no interest on your balance for a specific time period after signing up for the card.

Find and compare small-business financing

To compare other types of small-business financing, check out NerdWallet’s loan comparison tool. We gauged lender trustworthiness, market scope and user experience among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.

Last updated on April 27, 2020

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NerdWallet's Business Line of Credit: How It Works and Best Options

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