Are you a small business owner struggling with managing cash flow and financing short-term expenses? If so, an online lender’s small business line of credit may be the solution for you. Unlike traditional loans, these lines of credit provide access to a predetermined amount of credit that prospective borrowers can draw from as needed. Additionally, there are no high borrower requirements, and the funds are easily accessible through your bank account.
Small business lines of credit come in different forms, such as a small business line or a small business advantage line, and may be offered by lenders or through a business checking account. Business credit cards are another form of business lending specifically designed for covering expenses. Businesses access these credit lines with varying loan amounts, depending on the loan requirements, and can apply for them through a loan application process.
But how do prospective borrowers know which option is best for their loan requirements and financial situation? It’s important for small business owners to carefully consider their options, including online lenders, and loan amounts before pursuing any type of financing.
We’ll also take a look at some popular options like Kabbage Funding and SBG Funding that have helped many small businesses thrive. For prospective borrowers, choosing financial products like Fundbox can be a great option with flexible loan amounts.
So if you’re ready to learn more about choosing financial products and managing your personal assets, while also keeping track of your credit scores and funding1 business, keep reading!
Understanding Business Lines of Credit: How They Work and Factors to Consider
What is a Business Line of Credit?
A business line of credit is a type of financing that allows businesses to access funds up to a certain limit. Unlike traditional loans, lines of credit provide businesses with the flexibility to borrow only what they need when they need it. This means that businesses can draw on their line of credit as needed and only pay interest on the amount borrowed. When choosing financial products, businesses can consider a bank or an alternative lender like Funding Circle to open a line of credit account.
Factors Affecting Qualification for a Business Line of Credit
Several factors, including FICO score, revenue, time in business, and loan amounts, can affect a business’s ability to qualify for a line of credit from a bank. Lenders typically require borrowers to have a minimum credit score and annual revenue before approving them for a line of credit. Lenders may also require businesses to have been in operation for a certain amount of time and have an account with the bank before being eligible for financing.
Credit Score: A good personal or business credit score, also known as FICO scores, is essential when applying for any type of financing from a bank. The higher the score, the better your chances are at getting approved for favorable terms and rates. It’s important to regularly check your account to stay on top of your credit scores.
Revenue: Lenders, such as banks and Lendio, want to see that your business has consistent cash flow and enough revenue coming in each month to cover loan amounts and payments on the line of credit. It’s important to maintain a healthy account to increase your chances of being approved for a loan.
Time in Business: Startups may find it challenging to obtain loan amounts or lines of credit because they lack an established track record. Most lenders prefer working with established businesses that have been operating for at least two years and require a personal guarantee. Additionally, lenders may also consider the business owner’s FICO score, which should be at least 600, and the number of months the business has been operating.
Terms and Conditions
Understanding the terms and conditions associated with a business line of credit is crucial as loan amounts, interest rates, fees, and repayment schedules can vary widely from lender to lender. It’s important to read through all documents carefully before signing anything, especially if a personal guarantee or FICO score is required to open the account.
Interest Rates: Interest rates on lines of credits tend to be higher than traditional bank loans but lower than those associated with using business credit cards. These rates are determined based on factors such as FICO scores, personal guarantee, and loan amounts.
Fees: Fees can include application fees, maintenance fees, withdrawal fees, or early termination fees. Be sure to ask about all fees associated with small business lines of credit and small business loans, including loan amounts, before applying. Additionally, inquire about any fees that may be waived if you have a business checking account.
Repayment Schedule: Repayment schedules can vary depending on the lender and loan amounts. Some lenders require monthly payments for a minimum of months, while others may allow businesses with good credit scores to make payments only when they draw on their line of credit.
Considerations Before Applying
Businesses should carefully consider their loan amounts, cash flow needs, and potential uses for a line of credit before applying. Lines of credit can be used for a variety of purposes, including inventory purchases, payroll expenses, and marketing campaigns. However, it’s important to remember that borrowing money comes with risks and the loan amounts should be repaid within a few months. Additionally, credit scores play a vital role in determining the interest rates and approval of the line of credit.
Cash Flow Needs: Determine the minimum amount of financing your business needs for a specific purpose and the number of months it will cover. This will help you determine if a line of credit is the right solution for your business, taking into account your credit scores.
Potential Uses: Consider how you plan to use the funds from your business loan or business lines of credit for funding1 business needs. Will you use it for short-term cash flow needs or long-term investments to boost your business revenue?
Risks: Business owners seeking funding1 for their business through a business loan should be aware of the risks associated with lines of credit, such as overspending or defaulting on payments. It is important to have a solid repayment plan in place to ensure the loan can be paid back using future business revenue.
Top Business Lines of Credit for June 2023: Lendio, BlueVine, Backd, Wells Fargo, PNC Secured Business Credit Line, Credibly, Kabbage Funding, SBG Funding
Why We Like BlueVine
BlueVine is one of the most popular business lines of credit options available today, with a minimum credit score requirement. They offer access to up to $250,000 with funding as fast as the next business day, making them a great choice for businesses in need of quick financing solutions within months.
One reason business owners prefer BlueVine is their easy-to-use online platform for applying for business lines of credit. It’s simple to get approved quickly, with competitive interest rates and flexible repayment terms that allow you to pay back your loan based on your business revenue and scores.
Another reason we like BlueVine is their excellent customer service. Their team is always available to answer any questions you may have and provide support throughout the entire lending process, whether you are applying for a credit line, small business line, or business loan with their Small Business Advantage Line.
Overall, if you’re looking for a reliable and efficient business line of credit option with great customer service, fast funding times, and high scores, we highly recommend checking out BlueVine.
Why We Like Wells Fargo
Wells Fargo offers unsecured lines of credit up to $100,000 with a 10-day funding timeline, making it a great option for businesses with good credit scores in need of funds.
One reason we like Wells Fargo is their established reputation in the financial industry. They’ve been around for over 150 years and have built a solid track record of providing reliable financial services to individuals and businesses alike. Whether you need a credit line or want to check your personal credit score, Wells Fargo has got you covered with their minimum credit score requirements and comprehensive scores evaluation.
Wells Fargo offers competitive interest rates on their lines of credit and flexible repayment terms that can be customized based on your specific needs. As a business owner, you can also apply for a business loan to help grow your company. They also provide access to helpful resources such as financial calculators and educational materials that can help you make informed decisions about your borrowing needs, taking into consideration your credit scores.
Finally, Wells Fargo offers a range of other financial products and services that can be beneficial to businesses, such as business checking accounts, merchant services, and payroll solutions. In addition, they provide credit lines with a minimum credit score requirement and offer assistance in improving credit scores. This makes them a great one-stop-shop for all your business banking needs.
Why We Like Lendio
Lendio is another excellent option for businesses in need of a line of credit. They offer lines of credit up to $500,000 with funding as fast as two days. While they’re not available in every state, they do offer financing options in North Dakota, South Dakota, and Puerto Rico where traditional financing options may be limited.
One reason we like Lendio is their simple application process. You can apply for a line of credit online in just a few minutes and receive multiple loan offers from different lenders. This allows you to compare rates and terms and choose the best option for your business.
Another reason we like Lendio is their commitment to transparency. They provide clear information about rates and fees upfront so you know exactly what you’re getting into before you sign on the dotted line. Additionally, Lendio considers your business credit score and business credit risk when matching you with potential lenders. There is no minimum credit score required to apply for business lines of credit through Lendio.
Finally, Lendio has an excellent reputation among borrowers. They’ve received numerous positive reviews from satisfied customers who appreciate their fast funding times, competitive rates, and helpful customer service. For small businesses looking for a credit line, Lendio offers a small business line of credit with minimum credit score requirements based on the business credit score.
Deciding Why You Need a Line of Credit and How Much It Will Cost
Determine your funding needs and how much you require for your business expenses.
Before applying for a line of credit, it’s essential to determine the exact amount you need to borrow. You should have a clear understanding of your business expenses and revenue streams. Consider both short-term and long-term expenses like rent, utilities, inventory, equipment purchases or repairs, marketing costs, payroll, taxes, etc. Once you have an accurate estimate of your expenses, add a buffer amount to cover any unforeseen circumstances that may arise.
It’s crucial to be realistic about how much money you need. Borrowing too little can leave you short on cash when unexpected expenses occur while borrowing too much can lead to unnecessary debt and interest payments. A good rule of thumb is to apply for a line of credit that is slightly higher than what you think you’ll need.
Consider the loan amount, repayment terms, and interest rates when deciding on a line of credit.
When choosing a line of credit lender or financial institution, consider the loan amount they offer as well as their repayment terms and interest rates. Some lenders may offer lower interest rates but shorter repayment periods while others may provide more extended repayment terms at higher rates.
It’s important to compare different lenders’ offers before settling on one as this will help you find the best credit line deal that suits your business needs. Be sure to check each lender’s minimum credit score requirement and read all the fine print in each lender’s agreement carefully so that there are no surprises later on.
Evaluate your revenue requirements and monthly payments to ensure you can meet the repayment schedule.
One significant factor in deciding whether or not to take out a line of credit is evaluating if your business has enough revenue coming in each month to make timely repayments. If not managed correctly with proper planning and budgeting strategies in place; taking out loans can lead businesses into debt traps.
To avoid business credit risk, you should calculate your monthly payments and ensure that they can be met without disrupting your company’s cash flow. It’s also essential to have a backup plan in case of any unexpected circumstances that may affect your ability to make timely repayments. Keeping a good business credit score is crucial when applying for a small business line of credit, as lenders will typically require a minimum credit score to approve your application.
Understand the funding process and funding time to determine if a line of credit is suitable for your needs.
The funding process for lines of credit varies from lender to lender. Some lenders may offer same-day funding while others may take several weeks or even months before releasing funds. It’s crucial to understand the timeline involved in the funding process as this will help you plan accordingly.
If you need immediate access to funds, then a line of credit with fast turnaround times is ideal. However, if you have more extended repayment terms and don’t need immediate access to funds, then a longer processing time may be acceptable.
Take into account several factors consumers should consider, such as expenses, revenue, and repayment term when deciding on a term loan.
When considering taking out a term loan instead of a line of credit; there are several factors consumers should consider. These include expenses, revenue requirements, repayment terms, interest rates, loan amount required among others.
Term loans are best suited for businesses that require large sums of money upfront or who need long-term financing solutions, regardless of their minimum credit score. They usually come with fixed interest rates and regular monthly payments over an extended period. Businesses must ensure that they can meet these monthly payments without affecting their cash flow negatively.
Is a Business Line of Credit a Good Idea? When to Consider One
What is a business line of credit?
A business line of credit is a type of financing that allows businesses to access funds up to a predetermined limit. It works similarly to a credit card, where the borrower can borrow and repay funds as needed, only paying interest on the amount borrowed. The main difference between a business line of credit and other types of financing is its flexibility – businesses can use it for various purposes, such as covering unexpected expenses or taking advantage of growth opportunities.
When is a business line of credit a good idea?
A business line of credit can be an excellent option for businesses that need flexible access to funds. It’s particularly useful for companies with fluctuating cash flow or seasonal sales, as they may not always have enough money on hand to cover their expenses. A business line of credit can help bridge those gaps and ensure that the company has the necessary working capital.
Another scenario where a business line of credit might be beneficial is when businesses are looking to take advantage of growth opportunities. For instance, if you want to expand your product lines or open new locations, you’ll need additional funding. A business line of credit gives you the flexibility to borrow what you need when you need it without having to go through the application process every time.
What are business lines of credit used for?
Businesses use lines of credits for multiple reasons, but some common uses include:
- Covering unexpected expenses: Businesses often face unforeseen costs such as equipment repairs or emergency maintenance. Having access to funds through a line-of-credit can help cover these costs without disrupting operations.
- Managing cash flow: Businesses with uneven cash flow sometimes struggle with making payroll or purchasing inventory during slow periods. A line-of-credit provides quick access to cash when needed.
- Taking advantage of opportunities: Businesses sometimes need extra capital quickly in order to purchase inventory at a discount, take on a new client or project, or expand their operations. A line-of-credit can provide the necessary funds to seize these opportunities.
- Investing in growth: Businesses that want to invest in marketing, product development, or other growth initiatives may use a line-of-credit to fund these projects.
Why we like OnDeck
OnDeck is one of the best business lines of credit providers out there because they offer flexible terms and competitive rates. They have an easy-to-use online application process that takes only minutes to complete, and you can get approved within 24 hours. OnDeck reports your payment history to credit bureaus, which can help improve your credit score over time.
Another reason we like OnDeck is their excellent customer service. They have a team of experienced loan specialists who are available by phone or email to answer any questions you may have about the application process or your account. They also offer educational resources such as webinars and blog posts that can help you make informed decisions about your financing options. If you’re looking for a small business line of credit, OnDeck is a great option. They don’t have a strict minimum credit score requirement, so even if your business credit score isn’t perfect, you may still be eligible for funding.
Evaluating Your Qualifications for a Business Line of Credit
Understanding the credit requirements of a business line of credit
A business line of credit can be an excellent financing option for small businesses that need access to funds quickly. However, before applying for one, it’s essential to understand the credit requirements and what lenders look for in prospective borrowers. Most lenders will require a minimum credit score of 600 or higher, although some may have stricter requirements. They will consider other factors such as your years in business, annual revenue, and cash flow.
Knowing the importance of a good business credit score for prospective borrowers
One critical factor that lenders consider when evaluating loan applications is your business’s credit score. A good business credit score indicates to lenders that you are financially responsible and have a history of paying your bills on time. The higher your score, the better your chances of being approved for a loan with favorable terms and interest rates.
Evaluating personal credit scores and their impact on loan requirements
While having a strong business credit score is crucial when applying for a line of credit, many lenders also consider personal credit scores. This is especially true if you’re just starting out or have limited financial history as a business owner. In these cases, lenders may use your personal FICO score to determine whether you qualify for financing and what interest rate you’ll receive.
Recognizing high borrower requirements for credit lines with higher credit limits
If you’re looking to secure a larger line of credit with higher limits, keep in mind that lenders will typically have more stringent borrower requirements. This includes having an established track record as a successful business owner with significant annual revenue and cash flow.
Exploring options for bad-credit borrowers, including online lenders and American Express Business Lines
If you have bad or limited credit history as a borrower but still need access to funds through a line of credit, there are still options available. Online lenders may be willing to work with borrowers who have lower credit scores, although interest rates and fees may be higher. American Express offers a business line of credit that doesn’t require a minimum credit score, making it an excellent option for those with bad or limited credit history.
Considering the potential for a credit line increase based on excellent credit and low business credit risk
If you already have an existing line of credit but are looking to increase your borrowing capacity, having excellent personal and business credit can help. Lenders may be more willing to extend additional financing if they see that you have a solid financial history and low risk as a borrower. Keep in mind that this will still require meeting other requirements such as annual revenue and cash flow.
Secured vs Unsecured Business Lines of Credit: Which is Right for You?
Understanding the Difference
One of the most important decisions you’ll make is whether to pursue a secured or unsecured line of credit. While both options can provide vital funding when you need it most, they differ significantly in terms of requirements, interest rates and risk.
An unsecured business line of credit does not require collateral, making them a good option for businesses that do not have assets to pledge. This means that if you default on the loan, the lender cannot seize your assets as repayment. However, because there is no collateral involved, an unsecured line of credit can be more difficult to qualify for than a secured line. Lenders may view this type of loan as higher risk and may require stronger financials or other criteria before approving your application.
On the other hand, secured lines of credit require collateral such as property or equipment which can be seized by the lender if you default on the loan. The main advantage of a secured line of credit is that it typically offers lower interest rates and higher credit limits than an unsecured line due to the reduced risk for lenders.
Pros and Cons
If you’re considering applying for a business line of credit, it’s essential to weigh up the pros and cons associated with each option carefully.
Unsecured Business Line
Pros:
- No collateral required
- Faster approval process
- Flexibility in how funds are used
Cons:
- Higher interest rates
- More difficult to qualify for
- Lower credit limits
Unsecured lines are ideal for businesses that don’t have valuable assets like real estate or equipment to use as collateral. Because there’s no requirement for security, these loans are often approved faster than their secured counterparts, and may have a minimum credit score requirement.
However, because there’s no guarantee that the loan will be repaid through asset seizure in case of default, unsecured lines of credit pose a higher risk to lenders. As a result, interest rates can be significantly higher than those for secured loans.
Secured Business Line
Pros:
- Lower interest rates
- Higher credit limits
- Easier to qualify for
Cons:
- Collateral required
- Longer approval process
- Risk of losing assets in case of default
Secured lines of credit offer lower interest rates and higher credit limits because the collateral reduces the lender’s risk. They’re also easier to qualify for since the security provided gives lenders greater confidence that the loan will be repaid.
However, securing a line of credit with collateral means that you run the risk of losing your assets if you default on the loan. The approval process is also typically longer than it is for unsecured lines.
Options for Secured Business Lines of Credit
If you’ve decided that a secured business line of credit is right for your needs, there are several options available to you:
- Real Estate Equity Line: If you own commercial or residential property with equity built up, you may be able to secure a line of credit using this equity as collateral.
- Equipment Financing: Many equipment financing companies offer lines of credit based on the value of equipment owned by your business.
- Invoice Financing: If your business has outstanding invoices due from customers, some lenders will provide a line of credit based on these accounts receivable as collateral.
- Small Business Administration (SBA) Loans: The SBA offers several types of loans including secured lines of credit backed by real estate or other eligible collateral.
- Bank Loans: Traditional bank loans often require collateral such as real estate or equipment and can be used as a source for secured lines of credit.
Alternatives to Business Lines of Credit: Invoice Financing, Equipment Financing, Merchant Cash Advance
Invoice Financing: Get Paid Faster with Unpaid Invoices
Invoice financing is a type of business financing that allows businesses to sell their unpaid invoices to a third-party provider in exchange for immediate funds. This alternative financing option can be an excellent choice for businesses looking to improve their cash flow and get paid faster.
With invoice financing, businesses can receive up to 95% of the invoice’s value upfront from the provider. The remaining balance is held until the customer pays the invoice in full. Once payment is received, the provider releases the remaining balance minus fees and interest.
One advantage of invoice financing is that it’s relatively easy to qualify for compared to traditional loans. Providers typically look at your customers’ creditworthiness rather than your business’s financial history. You don’t have to worry about making payments on a set schedule as you would with a loan.
However, there are some drawbacks to consider when using invoice financing, especially if you have a low business credit score. For one, providers often charge higher fees and interest rates than traditional loans due to the increased risk associated with unpaid invoices. If your customers fail to pay their invoices on time or dispute them altogether, you could end up owing more money than you initially received.
Equipment Financing: Upgrade Your Business Without Breaking the Bank
Equipment financing is a financial product that enables businesses to purchase or lease equipment and machinery without paying the full cost upfront. This alternative financing option can be an excellent choice for businesses looking to upgrade their equipment without breaking the bank.
With equipment financing, you can finance up to 100% of your equipment costs through a loan or lease agreement. Loans typically offer lower interest rates but require collateral such as business assets or personal guarantees. Leases require little or no collateral but may have higher interest rates and fewer tax benefits.
One advantage of equipment financing is that it allows you to conserve your cash flow by spreading out the cost of equipment over time. Additionally, if you have a good business credit score, you may be able to secure lower interest rates on equipment loans. You can deduct the interest paid on equipment loans from your taxes, potentially saving you money.
However, there are some drawbacks to consider when using equipment financing. For one, you could end up paying more in interest and fees over time than if you had purchased the equipment outright. If your business experiences a downturn or bankruptcy, you may be responsible for repaying the loan or lease agreement even if you no longer have access to the equipment.
Merchant Cash Advance: Get Cash Now in Exchange for Future Sales
Merchant cash advance is a type of business financing that provides businesses with a lump sum of cash in exchange for a percentage of future credit card sales. This alternative financing option can be an excellent choice for businesses looking to get cash quickly without going through a lengthy application process.
With merchant cash advance, businesses can receive anywhere from $2,500 to $250,000 upfront from the provider. The provider then takes a percentage of your daily credit card sales until they recoup their investment plus fees and interest.
One advantage of merchant cash advance is that it’s relatively easy to qualify for compared to traditional loans. Providers typically look at your monthly revenue and gross revenue rather than your credit score or financial history. Payments are made automatically based on your daily credit card sales so you don’t have to worry about making payments on a set schedule.
However, there are some drawbacks to consider when using merchant cash advance. For one, providers often charge higher fees and interest rates than traditional loans due to the increased risk associated with future sales. If your business experiences a downturn or bankruptcy, you may still owe money even if your daily credit card sales decrease.
Choosing the Best Business Line of Credit for Your Needs
There are a few factors you need to consider.
Firstly, it’s important to understand how business lines of credit work and what factors you should consider. Then, you can evaluate your qualifications for a business line of credit and decide whether it’s the right option for you. You can also explore alternatives such as invoice financing, equipment financing, and merchant cash advance.
After that, you can take a look at the top business lines of credit available in June 2023. This list includes Lendio, BlueVine, Backd, Wells Fargo, PNC Secured Business Credit Line, Credibly, Kabbage Funding and SBG Funding.
Once you’ve narrowed down your options based on these factors and evaluated the costs associated with each one, you can make an informed decision about which business line of credit is best suited for your needs.
FAQs
How much money can I borrow with a business line of credit?
The amount of money you can borrow with a business line of credit depends on various factors such as your company’s revenue history and financial standing. Generally speaking, lenders offer lines of credits ranging from $10K – $1M.
Can I get approved for a business line of credit if my credit score is low?
It may be challenging to get approved for a traditional unsecured business line if your personal or company’s credit score is low. However secured loans are an option where collateral (such as property) secures the loan making approval easier than an unsecured loan.
What fees should I expect when getting a business line of credit?
The fees associated with getting a business line vary depending on the lender and type of loan. Some common fees include annual fees, maintenance fees, and transaction fees. You should carefully review the terms of each loan to understand the costs associated with it.
How often can I draw from my business line of credit?
This depends on your lender and the terms of your specific line of credit. Some lenders allow you to draw from your line as frequently as you’d like while others may have restrictions or require a waiting period between draws.
How long does it take to get approved for a business line of credit?
The approval process for a business line of credit varies depending on the lender. It’s important to research different lenders and their application processes to find one that works best for you. Generally speaking, secured loans can be approved faster than unsecured loans.
In conclusion, finding the best business line of credit requires careful consideration of various factors such as costs, qualifications, and alternatives. By understanding these factors and evaluating your options thoroughly, you can make an informed decision about which business line of credit is right for your needs.
