In a Nutshell
Small and start-up businesses need capital to survive and thrive. One possible source of capital is a business line of credit. We reviewed 13 different lines of credit from five major banks and found six of the best for you to consider.A business line of credit is a possible option for a small or start-up business to get the capital needed to manage cash flow, fund day-to-day operations and take advantage of new opportunities.
Our picks for the best business lines of credit come with limits ranging from $10,000 to $3 million. The challenge is to find one that meets your needs. Here are six of the best, whether you’re just starting out or are established and looking to grow, and a quick look at how business lines of credit work.
- How does a business line of credit work?
- What are the requirements to get a business line of credit?
How does a business line of credit work?
A business line of credit allows a business to borrow money, repay it and borrow again, up to the credit limit — similar to a credit card.
Business lines of credit aren’t all alike. Some are offered by banks. Others are offered by nonbank finance companies. Some are secured, which means they may require collateral. Collateral may take the form of business assets, commercial property, personal property (generally your home) or certificates of deposit. Other lines are unsecured, which means no collateral is required.
A line of credit comes with a credit limit, which is the maximum amount that you can borrow from it at any one time. Unlike a credit card, the line can incur interest as soon as you use any portion of the funds. The interest rate you’ll be charged for the amount you borrow is usually lower for a credit line than a credit card.
Before you apply for a business line of credit, research the terms, compare offers and read the fine print. Consider factors such as …
- Credit limit
- Interest rate
- Repayment period
- Annual review and renewal
- Requirements to be approved
- Any special perks or rewards
What are the requirements to get a business line of credit?
To get a business line of credit, you must apply and be approved by the lender. Whether your company is approved depends on whether it’s deemed creditworthy, and if you have business credit scores, those may be considered. But the requirements will vary by lender.
If you haven’t had a business line of credit before, a lender may look at individual credit history, including personal lines of credit (such as credit cards), to understand how you might handle and appropriately use a business line of credit.
Bottom line
You can apply for a business line of credit before you need one, say if you’re worried about cash flow, or wait until you’re actually ready to use the funds. Understanding why you want the credit line may help you present a strong case to lenders when you apply.