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Business Line of Credit: How It Works and Best Options

April 19, 2019
Small Business, Small Business Loans
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A business line of credit 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 is similar to how credit cards work.

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

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 line of credit up to $100,000

Here are our recommendations for business lines of credit from online lenders, based on maximum credit limit:

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

Line of Credit

  • Loan amount: $1,000 to $100,000
  • APR: 10.1% to 79.8%
  • Loan term: 12 weeks
  • Funding time: As fast as next business day
  • Read our Fundbox review
Apply now At Fundbox

Fundbox is a solid option if your company is getting started because you can qualify after just three months in business. The company has no minimum credit score requirements and requires $50,000 or more in revenue.

If you want lower rates, StreetShares is a better option, but you need at least a year in business to qualify. Like Fundbox, the lender requires a minimum of $25,000 in annual revenue. An important caveat: Your maximum credit limit cannot exceed 20% of your annual business revenue. For example, a business with $100,000 in annual revenue could be approved for up to $20,000.

OnDeck is a good option if you want fast funding. You can get financing as quickly as 24 hours after approval. You need a minimum 600 credit score, at least one year of business history and $100,000 in revenue.

Line of Credit

  • Standard loan amount: $5,000 to $250,000
  • APR: 9% to 40%; 1% to 5.5% for specialty lines
  • Loan term: 3 to 36 months
  • Funding time: 1 to 5 days
  • Read our StreetShares review
Apply now at StreetShares

Line of Credit

  • Loan amount: Up to $100,000.
  • APR: 13.99% to 63%.
  • Loan term: Repaid weekly.
  • Funding time: As fast as 24 hours but typically a few days.
  • Read our OnDeck review.

*APRs update quarterly

Apply now at OnDeck

Business line of credit up to $200,000+

Kabbage and BlueVine offer fast funding for borrowers. 

  • Loan amount: $2,000 to $250,000.
  • APR: 24% to 99%.
  • Loan term: 6, 12 or 18 months.
  • Funding time: A few minutes to several days.
  • Read our Kabbage review.
Apply now at Kabbage

Line of Credit

  • Loan amount: $5,000 to $250,000.
  • APR: 15% to 78%.
  • Loan term: Repaid over 6 or 12 months.
  • Funding time: As fast as 24 hours.
  • Read our BlueVine review.
Apply now at BlueVine

Kabbage works best if you need fast funding for short-term needs and you have poor credit. The lender requires a minimum credit score of 560, at least $50,000 in annual revenue and one year in operation to qualify. Kabbage’s annual percentage rates are higher than other options.

BlueVine is a better option if you can qualify for its lower rates. You’ll need a minimum credit score of 600, six months in operation and at least $120,000 in annual revenue to qualify for its six-month line of credit repayment option. Qualifying is even tougher with its 12-month line of credit, which requires a minimum credit score of 620, two years in operation and at least $450,000 annual revenue.

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.

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