A business line of credit is a handy way to access financing as needed rather than receiving a lump-sum payment such as with a small business loan. Business lines of credit can help you manage cash flow, buy inventory or pay for an unexpected expense. Better yet, you only pay interest on the amount you use, not the full approved credit line.
While the application process varies depending on the specific lender, you can follow these general steps to get a business line of credit.
1. Decide How Much Funding You Need
When you apply for a business line of credit, you’ll have to determine how much credit you need. Available loan amounts depend on the lender but typically range from $2,000 to $250,000. Because you don’t pay interest on the full amount and only on what you use, it’s acceptable to ask for a higher limit than you’ll likely need—as long as you don’t get greedy and spend more than you can afford.
If you need access to more funds after you receive your initial credit line, you can request a line of credit increase. Depending on your business’s revenue and credit history, the lender may approve this request or ask for collateral—something of value it can repossess if you fail to repay—to secure the line of credit.
2. Check Your Eligibility
While there are several different factors that lenders consider, there are a few that are most vital, including:
- Credit history. Your credit history illustrates the likelihood of you defaulting. While most lenders require a personal credit score of around 680, some lenders accept scores as low as 580 to 600. However, the higher your score, the better chances you have at securing a lower interest rate or higher loan amount.
- Business revenue. Most lenders have a minimum annual or monthly business revenue requirement. This varies depending on the specific lender but can range anywhere from $10,000 per month to $250,000 per year. Online lenders typically have less stringent revenue requirements compared to traditional banks.
- Time in business. Most banks require that a business has been in operation for at least one to two years, but some online lenders may only require six months. The longer the business has been around, the more stable it looks to potential lenders—and the lower interest rate you may receive.
3. Research and Compare Lenders
Once you understand how much financing you need and your eligibility, it’s time to research lenders that match up with that information. Be sure to compare different lenders’ maximum credit limits, repayment terms, minimum requirements and APR ranges, too.
There are a few different types of institutions that you can apply through:
- Banks and credit unions. Traditional lenders, such as banks and credit unions, are typically best for business owners with high credit scores, lengthy business histories and substantial annual revenue. New businesses may not qualify for loans through these institutions.
- Online lenders. Online lenders are best for business owners who may have lower credit scores, shorter business histories and lower business revenue. Because online lenders typically approve riskier prospective borrowers, interest rates may be higher than banks and credit unions.
4. Gather Required Documentation
Once you find your preferred lender, it’s time to gather the necessary documents to prepare for the formal application process. This will usually include the following:
- Personal and business tax returns
- Business licenses
- Articles of incorporation
- Personal and business bank statements
- Profit and loss statements
- Financial statements
- Business plan
- Building lease
If you’re unsure what documents are needed, contact the lender before applying.
5. Submit Your Application
Lastly, submit your application online or in person. Turnaround times vary by lender, and it can take as little as five minutes or as long as several days to get a decision. Your lender may also require you to provide additional documentation after reviewing your application.
Common information your lender may ask for includes:
- Your name
- Business name
- Social Security number (SSN)
- Desired loan amount
- Loan purpose
- Business Tax ID
- Annual revenue
If your loan is approved, a lender will send you a loan agreement to sign before issuing your line of credit you can draw from.