What is a Small Business Line of Credit?

In the small business loan and financing world, you will run into multiple options that you may qualify for. It’s important to know which of those programs is geared toward what your business needs financially. One of those options is a business line of credit. Unlike a term loan for small businesses with a fixed term, which provides a lump sum upfront, lines of credit are more flexible. A credit line works similarly to a business credit card in that you have a pool of funds that you can draw on as you need up to your credit sum limit.

This product usually has a principal amount and interest that accrues, but you are only responsible for paying interest on the current balance once payments are due. These rates and costs vary depending on the borrower’s credit and qualifications.

Both banks like Bank of America and online business lenders offer a way to get a business line. However, banks like Bank of America have tighter qualifications than online lenders. Online lenders have better approval rates with less stringent qualifications, but charge higher rates than banks like Bank of America because they take on greater risks.

If you’re interested in a business line of credit, AdvancePoint Capital can help. We offer credit lines for small businesses throughout the country. We’ve helped countless small business owners get the funding options they need, whether it’s through a line of credit or various other business loans. Whether you’re worried about annual revenue, time in business, or credit history — AdvancePoint Capital can help.

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How Does a Business Line of Credit Work?

A business line of credit is a flexible solution that can help businesses struggling with unforeseen challenges. Because these lines of credit reflect that of credit cards, many small business owners are able to grasp the concept and get started quickly. The lender will provide access to a certain amount of cash that is set by a specified credit limit — and you’re able to draw on that cash whenever you need it most for your company.
Business lines of credit don’t have payments or interest rate increases until you actually draw on the funds. So, you only need to pay for what you actually use. Business lines of credit can also come secured (financed by collateral) or unsecured (backed by a personal guarantee).
Compared to traditional loan options, lines of credit have much lower rates and closing costs. While business loan solutions can be an ideal choice for one-off purchases or investments, a business line of credit can be a great option for recurrent cash flow issues.
It’s renowned for its renewability, in which a company can repeatedly draw out what they need, make the necessary payments, and draw more all over again. That’s something a loan can not do. It’s a great cushion for emergency situations, working capital, seasonal expenses, operating expenses, payroll, and more. An SMB like yours can benefit from the incredible flexibility and revolving nature of a business line of credit to meet your financing needs.

Who Can Qualify for a Business Line of Credit?

The qualifications that a company needs to meet will vary depending on various lenders. However, the minimum qualifications typically are:

  • A minimum of 6 months time in business
  • A personal Credit score above 600
  • Business credit bureaus scores
  • An average of $200,000 in your annual revenue
  • No credit card transactions required

Time in business, personal credit score, business credit, and annual revenue all play a part in determining whether or not your company can get approved for a line of credit. However, these qualification factors are far more lenient than traditional lenders such as banks.

Although online lenders have an easier approval process with less documentation required than of traditional lenders, you will still need to provide some data to back up your statements. Common documents that a company may need to qualify include, but are not limited to:

  • Bank Account Statements
  • Tax Return (if applicable)
  • Profit & Loss (if applicable)
  • Balance Sheet (if Applicable)
  • Accounts Receivable/Payable (if applicable)

*requirement varies depending on the Bank, Credit Union, Business Lender, or Funder.

Bank account, tax returns, and other important paperwork — in addition to additional time in business, credit score, and annual revenue qualifications will grant you access to a small line of credit that you can use to move your company forward. Lines of credit offer a lot of flexibility and freedom, providing your operation with the cash flow you need now.

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What is the Best Business Line of Credit?

There are essentially two types of a business line of credit that you can receive from online lenders like AdvancePoint Capital. Both short-term and medium-term business lines of credit offer a lot of flexibility that borrowers can take advantage of.

Business lines of credit don’t necessarily have any term lengths, and you’re able to draw money up to the line of credit limit and pay it back indefinitely. Now, this is of course only possible if the lender deems you to be a responsible borrower that will make the necessary payments on your business credit lines. The only real differences between a short-term and medium-term line of credit are the maximum funding amounts, minimum qualifications, and possibly interest rates as well.

Unsecured Business Line of Credit

Unsecured business lines of credit are defined as a line of credit that can be obtained without personal collateral. What this means is, in the case of a default, the lender does not have recourse to recover losses by going after any pledged personal collateral.

An unsecured line of credit is just like a regular line of credit from a functioning standpoint, which is an open-ended credit account that has a preset borrowing limit that can be accessed at any time and allows small business owners the ability to draw money at any time and spend, repay it, and spend again on an ongoing basis just like a revolving line of credit would. The rates are principal & interest and you are only responsible for the daily interest on your current balance. Business lines of credit usually have a renewal period either annually or semi-annually depending on the lender.

Business lenders providing unsecured options usually have shorter terms, a lower approval amount, and/or higher costs than a secured business line of credit to compensate for the lack of a personal guarantee. Just because there is no personal collateral, doesn’t mean that the business owner’s credit score is not an important factor in the credit decision for lenders.

As a result, an unsecured business line of Credit has its positives and its negatives. The good news is that the application process is fast and easy with decisions usually in hours, not days, so you can receive funds quickly (in some cases same day!). But that speed must be balanced with the fact that the costs will be higher than that of a secured business line alternative.

What We Do

At AdvancePoint Capital, we offer multiple financing programs so that we can find the one that works for your operation. Every company is unique, and we believe in offering a wide selection of funding options so that you can discover a solution that works for you. Here’s what a line of credit might look like if you qualify:

Basic Features:

Credit Line Limit Amount: Flexible business lines of credit up to $250,000
Revolving Line: Renewal semi-annually or annually
Payment: Flexible cash when you need it
Rates: 6.99% and up

Eligibility Requirements For a Business Line of Credit:

  • A simple one-page application
  • Business bank statements for review. (We focus on gross sales, not primarily profit/loss!)
  • Established good personal credit score and business credit score (All credit scores are considered, from excellent to average.)

How Do I Get the Best Business Line of Credit for My Business?

The application process with AdvancePoint Capital for a business line of credit is a simple and quick process, one that you can take advantage of today. We’ve streamlined the application so that you’re able to get the cash flow you need fast. Because this funding solution works so similarly to credit cards, the application process is a breeze compared to traditional lenders such as banks. These institutions are far more lethargic with their line of credit operations, and it may slow down the time it takes to get the funding you need into your business lines. The AdvancePoint Capital marketplace has a variety of lenders that offer business lines of credit and other loan options.

Documents that are necessary to qualify for a business line of credit may include:

  • Bank Statements
  • Tax Return (if applicable)
  • Profit & Loss (if applicable)
  • Balance Sheet (if Applicable)
  • Accounts Receivable/Payable (if applicable)

*documents vary depending on Bank or Business Lender or Funder

These days, getting approval for a line of credit can be an easy process if you are dealing with the right company. With the advent of technology and automated underwriting processes, it has become simple to apply for a business term loan or credit line — and qualify from the comfort of your own home.

We’ve mentioned the similarities between a business line of credit and a credit card — but what are some of the differences? While they may seem like the same financing solution at the surface, there are some contrasts. These have much higher interest rates and charge additional fees for balance transfers or cash advances. Credit cards also may require monthly payments as well.

The fast, convenient and straightforward way to get the money you need for your business – now! Get Your Quote Today by filling out our simple form.

Why Should I Choose a Small Business Line of Credit?

The best answer is that it’s flexible!

Most established businesses need and want business lines of credit due to the fact that there is a lot of flexibility in how they can withdraw the money.  The only difference is they use it as they need it and only pay interest rates on the balance owed, meaning they don’t have to pay interest on a balance that they didn’t need at the time.

This is a great product, like a credit card as well, for quick use of money and a fast return on the investment of the capital. In fact, these are commonly used by manufacturers, contractors, and many other businesses that are going to use the loan funds as an investment. They will invest their borrowed money into purchasing products that will then be sold at a profit within a short period of time which is better suited than small business loans or a short-term loan.

Keep in mind, in most cases this product has safety features for the lender intact. They can review your account when you make a withdrawal, quarterly, or annually to verify your credit rating. Because of this, your credit limit can change. This can be a great benefit because as your company grows, your credit limit can grow, too.

Many popular uses for our business line of credit services include:

  • Instant access to money on demand
  • Working Capital
  • Funds Increased inventory
  • Financing needs for emergency short term cash flow issues

Banks still have more traditional methods and typically have the toughest standards and qualifications as well with loans and/or a business credit card. With their strict application process that can take up to 30 hours to complete and their lengthy approval or denial time, you might not know if you are approved for the funds for up to 90 days, and even then you will have to wait to have access to the cash.

Depending on what you need the funding for, and the time frame, this could be a great financing option for your company. However, certain needs and uses for money for businesses are not suitable for this product and may be better suited for loans. There may be a better financial product available for you than one that resembles business credit cards, so check out how to find the Best Business Loans to weigh all the benefits and evaluate the decision to get the best loans for your company.

FAQ About a Business Line of Credit

What’s the Difference Between a Business Line of Credit and a Business Loan?

A line of credit is essentially an account that you’re able to draw funds from and pay back only what you take out, like a credit card, because it’s revolving, you’re able to do reenact this cycle as many times as your lender allows (if you’re paying it back). A business loan typically has a repayment term — either every day or week until the loan is entirely paid off.

How Do I Pay Back What I Borrow?

It’s simple! If you create a line of credit of $100,000 amount, and you only draw $20,000 — you only need to pay back what you’ve drawn out. The remaining $80,000 is funds there if you need it in the future, but you don’t need to make payments on what funds you haven’t taken out.

What Will My Interests Rates Be like? How much is a Business Line of Credit?

There are several factors that could affect your interest rates such as time in business, credit rating, amount and annual revenue.

What Can I Use a Business Credit Line For?

You can use a line of credit for nearly any business expense you need, whether it’s bills, manage cash flow, unexpected expenses, new inventory, or equipment purchases. The use of funds is unlimited.

What is the difference between a Secured vs Unsecured Line of Credit?

Secured means that the business line of credit is secured with collateral such as property or a personal guarantee. An unsecured line of credit business financing does not require certain types of collateral but may or may not have a personal guarantee. Businesses should expect a higher interest rate and lower credit limits without collateral or guarantees for unsecured lines of credit. The best rates and terms require security.

What Banks offer Business Line of Credit?

Not all banks make it a priority to provide business credit line and loan options as it’s a high-risk enterprise. Most banks will require you to maintain a business bank account to apply for a credit line. Many just offer business credit cards or have strict guidelines. You will have to check around if you wish to use a bank to found out who is best. However, you can always rely on alternative lenders or your local credit union if need be.

Does the Small Business Administration offer Lines of Credit?

SBA not only provides loans but also lines of credit through the Small Business Administration’s (SBA) CAPLines Program.

How do you get a Business Line of Credit for a LLC?

The formation type whether sole prop, corporation or LLC won’t impact any credit decision.

What is the most common reason business owners use a Business Line of Credit?

Working Capital is the best use for Business Line of Credit because of the flexibility of the product to access funds on demand.

How Do I Get a Quote and Loan Offers?

You can get a quote by filling out our super easy and convenient quote form and get started today.

A convenient and straightforward way to get the lenders and bank loans you need for your business plan – now!

Get your quote today by filling out our simple form.

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* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.