How To Get A Business Line Of Credit

What type of expenses can I use a business line of credit for?

Generally, there aren’t any rules about what you can and can’t use a business line of credit for, beyond illegal activities and using them for non-business purposes. You need to read the fine print of your agreement to check what your limits are before you agree to your line of credit.

Secured vs unsecured business line of credit

It’s relatively unusual to find a secured business line of credit, but it is possible. A secured business line of credit allows you to secure the line of credit against your property, such as an expensive piece of equipment, a property, or similar. These can be a good idea if you would otherwise struggle to secure funding, but you need to be careful. The nature of a business line of credit makes it more likely that you’ll get into financial difficulty, so don’t secure the loan against anything you couldn’t afford to lose.

An unsecured business line of credit is given to you on the promise that you’ll pay it back, so it often comes with higher fees. That said, if you do get into financial difficulty, the lender won’t be able to seize your property to recoup their losses.

Business line of credit vs business credit cards

A business line of credit and a business credit card are very similar, the main difference is in the way the money can be used. In most cases, a business line of credit is linked to a business bank account, and you can move funds into your bank account directly.

A business credit card may allow you to do that (called a cash advance), but it generally comes with high fees, so it’s best to use the credit card to pay for things directly.

Does a business line of credit show up on a credit report?

It should show up on your business credit score, yes. Be wary of any lender that tells you it won’t. If you need to borrow money based on your income only, look into a merchant cash advance.

Is it possible to increase the business line of credit if I need to?

In some cases, yes. If you have been with your lender for a while and proven yourself to be a reliable borrower, they’ll likely consider increasing your line of credit. You’ll need to request an increase through them and provide them with any additional information they need. If you can put up something for collateral, you’ll have an even easier time.

How do interest payments work on a line of credit?

This can vary from lender to lender, so make sure you understand how you will be charged before you accept the terms of a line of credit. In most cases, however, you are only charged interest on the money you’ve borrowed. Generally, this interest plus the money you’ve borrowed requires a monthly payment (like a credit card) though some may require payments more often.

How to qualify for a business line of credit

To qualify for a business line of credit, you generally need:

• To have been in business for more than six months (2+ years is best)
• Have more than $25,000 in annual revenue
• A personal credit score of 500 or more

For some, you’ll also need something to put up as collateral.

Apply for a business line of credit

Once you’ve decided a business line of credit is the right funding option for you, it’s time to start comparing your options. Look for those with the lowest interest rates and the best terms. Once you’re ready to apply, make sure you have all the documentation you need, such as your personal and business tax returns, bank statements, profit and loss sheet, and similar. You can usually save an application once you’ve started, so if you need to pause to get another document, you will be able to.

Once you’re approved, your line of credit will usually be available to you in a matter of days.