While the application process may vary slightly across lenders, you can follow these general steps to get a business line of credit:
- Decide how much funding you need. Estimate the maximum amount of credit you’ll need by reviewing your business’ finances.
- Review your credit. When you apply for a business line of credit, a lender usually checks your personal and business credit scores. This helps a lender assess the likelihood that you may default on the line of credit. The higher your credit score, the better your loan approval odds and chances of securing a low interest rate.
- Research and compare lenders. To find the best business line of credit for your company’s needs, research different lenders and compare their maximum credit limits and repayment terms offered, minimum requirements and APR ranges.
- Gather required documents. Although the specific paperwork varies by lender,you’ll likely need personal and business tax returns, bank statements, a business plan and profit and loss statements. If you’re uncertain about what documents are needed, contact the lender before applying or review its website.
- Submit a loan application. Once you’ve found a lender that offers a line of credit that matches your unique business needs, submit a formal loan application online or in person.
Related: Business Loan Requirements: How to Qualify For Business Financing
Business Lines of Credit Vs. Other Financing Methods
While a business line of credit works best for certain types of expenses, other forms of financing may work better in some scenarios.
Business Line of Credit vs. Small Business Loan
Unlike a business line of credit, lenders issue small business loans as a lump sum of cash. After you receive funds, you’re required to repay the loan, including interest on the entire balance, in fixed installments over a set period of time—typically between six months and 25 years.
Small business loans are best for making large purchases and covering the cost of doing business while business lines of credit are handy as a rainy day fund.
Business Line of Credit vs. Business Credit Card
Similar to a business line of credit, a credit card provider issues you a credit limit you can borrow from as needed. However, business credit cards typically have significantly smaller credit limits. As a result, credit cards are better suited for smaller, day-to-day business expenses.
Business credit cards also have different qualification requirements. When you apply for a business credit card, your provider typically focuses on your personal credit score, making them a great option for startup owners or sole proprietors without a lot of business history.
However, business credit cards often come with higher interest rates than business lines of credit. But if you have good to excellent credit, you may qualify for an interest-free promotional period on purchases and/or balance transfers. As long as you pay your balance off in full before the period expires, you can avoid all interest charges.