What is a Business Line of Credit?

In small business loans and financing, 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 loan for small business with a term line, which provides a lump sum upfront, business lines of credit are more flexible. They work 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 small business borrower’s credit and qualifications.

Both banks and online business lenders offer this product. However, banks have tighter qualifications than online lenders. Online lenders have better approval rates with less stringent qualifications, but charge higher rates than banks because they take on greater risks.

If you’re interested in a business line of credit, AdvancePoint Capital can help. We offer a wide variety of trusted alternative funding options for small businesses throughout the country. We’ve helped countless 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 small 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 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 business.

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 business loan options, small business lines of credit have much lower interest rates and closing costs. While business loan solutions can be an ideal choice for one-off purchases or investments, business lines of credit can be a great option for recurrent cash flow issues.

Business lines of credit are renowned for their renewability, in which a business can repeatedly draw out what they need, make the necessary payments, and draw more all over again. It’s a great cushion for emergency situations, seasonal expenses, operating expenses, payroll, and more. A small business like yours can benefit from the incredible flexibility and revolving nature of a business line of credit.

Who Can Qualify for a Business Line of Credit?

The qualifications that a small business needs to meet will vary depending on the lender. However, the minimum qualifications typically are:

  • A minimum of 6 months time in business
  • Credit scores above 500
  • An average of $200,000 in your annual revenue

Time in business, credit score, and annual revenue all play a part in determining whether or not your small business 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 that of traditional lenders, you will still need to provide some data to back up your statements. Common documents that a small business 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, 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 small business with the lines that can get you 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.

Small 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. 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 Lines 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 business lender does not have recourse to recover losses by going after any pledged personal collateral.

An unsecured business line of credit is just like a regular line of credit from a functioning stand point, which is an open-ended credit account that has a preset borrowing limit that can be accessed at any time and allows 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 daily interest on your current balance. Business lines of credit usually have a renewal period either annually or semi-annually depending on the business lender.  

Business lenders providing unsecured business lines of credit usually have shorter terms and/or higher costs than secured business lines of credit to compensate for the lack of a personal guarantee. 

As a result, unsecured business lines of credit have their positives and their 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 of credit.

What We Do

At AdvancePoint Capital, we offer multiple financing programs so that we can find the one that works for your small business. 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:

Loan Size: Flexible business lines of credit up to $100,000

Terms: Repayment terms over 12 months

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
  • Paperwork
  • Compabank statements for review. (We focus on gross sales, not primarily profit/loss!)
  • Credit

All credit types are considered, from excellent to poor.

How to Apply for a Business Line of Credit

The application process with AdvancePoint Capital for a business line of credit is a simple and quick process. 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 a credit card, 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. 

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 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. A credit card has much higher interest rates and charges additional fees for balance transfers or cash advances. Credit cards also may require monthly payments as well. However, lines of credit give you access to cash flow fast!

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 Business Line of Credit?

The simple answer is that it’s flexible!

Most established businesses and business owners need and want a business line of credit due to the fact that there is a lot of flexibility in how they can withdraw the money — similar to credit cards.  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 large sums of interest on a balance that they didn’t need at the time.

This is a great product for quick use of money and a fast return on the investment of the capital. In fact, lines of credit 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.

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
  • Increased inventory
  • Solutions for emergency cash flow issues

Banks still have more traditional methods and typically have the toughest standards and qualifications as well. 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, this could be a great loan for your company. However, certain needs and uses for money for businesses are not suitable for this product. There may be a better financial product available for you than one that resembles credit cards, so check out how to find the Best Small Business Loans to weigh all the benefits and evaluate the decision to get funding for your business.

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. 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 small 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, and you only draw $20,000 — you only need to pay back what you’ve drawn out. The remaining $80,000 is there if you need it in the future, but you don’t need to make payments on what you haven’t taken out.

What Will My Interests Rates Be like?

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

What Can I Use a Line of Credit For?

You can use a line of credit for nearly any business expense you need, whether its bills, manage cash flow, unexpected expenses, new inventory, or equipment purchases.

How Do I Get a Quote?

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

* 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.