What Is a Business Line of Credit?
A business line of credit is a flexible financial tool. Unlike a loan, which disburses a one-time lump sum that must be repaid on a fixed schedule, a line of credit provides access to a predetermined amount of funds that can be drawn on as needed. This access allows you to cover business expenses without taking out an entire loan amount at once.
The funds available through a line of credit are "revolving," meaning you can draw funds, repay it, and then draw on it again. The balance can be carried over month to month, and interest accrues only on the portion of funds you utilize. As you pay back the principal, your available credit increases up to the set limit, offering ongoing access to capital.
When small business owners explore financing options, they often compare term loans and business lines of credit. One significant advantage of a line of credit over a term loan is its flexibility; you only pay interest on the amount you actually draw. However, it's important to be aware of potential fees, which can vary by lender and might include inactivity fees among other charges. The primary limitation of a line of credit is that you cannot exceed your approved credit limit.
Fast Access to Funds
Funds may be available as early as the next business day following approval.
Funds Readily Available
A business can draw on the line of credit, easily and as needed through a simple withdraw request.
Flexible Terms
Unlike a traditional term loan, you only repay what you use with an agreed-upon rate and term. Capital is accessible as you need it!
Do I qualify?
Minimum Qualifications
600+ personal FICO score
At least 1 year in business
$100,000+ in annual revenue
What You Need To Apply
Basic info about your business
Business checking account
Last 3 months business bank statements
Business Line of Credit Calculator
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*The calculator results are for general informational purposes and illustration only, to provide a potential estimate of loan costs, and is not to be treated as an offer. These estimates do not guarantee actual pricing. The information provided here is without warranty. This calculator does not offer tax, legal, financial, or investment advice, nor does it ensure the availability or eligibility for any specific product. Different institutions may have varying terms and conditions that could affect the calculator's outcomes. For personalized advice, please consult with qualified professionals. Applications are subject to approval.
How Does a Business Line of Credit Work?
Lenders offer business lines of credit with some variations, but typically these include a draw period followed by a repayment period. The draw period usually extends from two to five years, during which you can access funds up to an agreed-upon limit.
While you only pay interest on the amount you actually draw, it’s important to note that these funds will accrue interest during the draw period. If you choose not to utilize your line of credit, no interest charges apply, though a nominal fee might still be incurred to maintain the open line.
After the draw period concludes, if you have outstanding balances, the repayment phase begins. During this time, no additional funds can be withdrawn. The repayment of the borrowed amount is done in installments, much like a standard business loan. It's crucial to be aware that interest rates on these lines of credit are typically variable, meaning that they may fluctuate over the course of the credit line’s term.
How to Get a Business Line of Credit
Before applying for a business lines of credit, it's important to evaluate your funding needs. Here's a step-by-step guide to help you secure the necessary funds for your business equipment:
1. Determine Your Funding Requirements
Before applying for a business line of credit, assess how much funding you will need. Lenders offer varying credit limits, typically between $5,000 and $250,000. Given that interest is only charged on the amount you utilize, it’s wise to apply for a limit slightly above your anticipated needs to ensure flexibility. However, it’s important to manage this credit responsibly and avoid overspending.
Should you find the need for additional funds beyond your initial credit line, you can apply for an increase in your credit limit. The approval of this request will largely depend on your business's financial performance and credit history. In some cases, the lender might require collateral to secure the increased line of credit, which they can claim if you default on repayments.
2. Evaluate Your Eligibility
When considering a business line of credit, lenders typically focus on a few crucial factors:
- Business Revenue: Lenders will evaluate your business's revenue to determine your ability to repay the borrowed funds. Requirements vary by lender but they generally require $100,000+ in annual revenue. Lenders in our network often have more flexible revenue requirements than traditional banks, which can be advantageous for newer or smaller businesses.
- Credit History: Your credit history is a key indicator of your financial reliability and risk of default. Most lenders look for a personal FICO score of 600+. A higher credit score can improve your chances of receiving more favorable terms, such as lower interest rates or a higher credit limit.
- Time in Business: The length of time your business has been operational is another important criterion. Traditional banks typically require a business to have been active for at least two years or more, whereas lenders in our network typically only require a minimum of 1 year. A longer operational history can convey stability to lenders, potentially leading to lower interest rates.
3. Submit Your Application
Applying for a business line of credit at Status Funding is designed to be quick and easy. Our online application process can be completed in just a few minutes. During the application, you will be asked to provide details about your business which includes the owner's information, general business information, the last three months of bank statements, identity verification documents, and a business checking account. Once submitted, our advanced algorithm swiftly evaluates your business profile to match you with the ideal lenders, ensuring a perfect fit for your financial needs. If approved, you will receive business line of credit offers to review and select the best offer that suits your needs. This enables you to access the capital your business requires, often within as little as 24 hours, streamlining the process to get you funded efficiently and effectively.
Pros and Cons
Draw funds as needed up to the credit limit
Only pay interest on the drawn amount
Repay and reuse the available credit
Helps manage cash flow and cover short-term expenses
Rates may fluctuate
Easy access to funds can lead to overspending
Potential fees such as maintenance, draw, or inactivity fees
Our application process is easy.
1
Apply Instantly
Fill out our quick and easy online application. It only takes a few minutes and won't affect your credit score.
2
Discover Your Options
Receive personalized funding offers, carefully curated to align with your business goals and requirements.
3
Get Funded
Choose the best funding offer for you and access the capital your business needs in as little as 24 hours.
Line of Credit FAQs
If you have a clear, one-time business need and prefer predictable repayment terms, a small business loan may be more suitable. If your business experiences fluctuating cash needs and you value flexibility in accessing funds, a line of credit might be the better option. Ultimately, the right choice depends on your business’s financial health, the predictability of your cash flow, and how you intend to use the funds.
Secured lines of credit require collateral like real estate or inventory, offering lower interest rates and accessibility for businesses with weaker credit. Unsecured lines, while not requiring collateral and suitable for asset-light businesses, generally have higher interest rates and require strong credit histories. Your choice depends on your business's assets and financial condition.
Lenders in our network typically require a minimum FICO score of 600 to qualify for a business line of credit, viewing it as a benchmark for financial reliability. A higher credit score can improve your chances of obtaining better terms, such as lower interest rates and higher credit limits.
To qualify for a business line of credit, traditional banks usually require a business to be operational for at least two years. However, lenders in our network typically require a minimum of one year. A longer operational history can lead to more favorable terms, such as lower interest rates, as it demonstrates stability to lenders.
*The content provided on this page reflects the opinions and insights of Status Funding, based on our research, methodologies, evaluations, and various additional considerations. This information is accurate as of the initial publication date. Status Funding makes every effort to update and maintain the accuracy of this content to ensure its relevance and accuracy, however, the information may differ from what you may find on other platforms, including financial information sites, different service providers, or specific product pages. All information is presented without any warranty. We encourage you to carefully review the terms and conditions, relevant policies, contractual agreements, and all applicable details of the financial institution when considering offers. The ranges mentioned here do not represent pre-qualified offers. Ranges may be greater or less based on the information provided in your business financing application. Please be aware that Status Funding may receive compensation from financial institutions that are reviewed on this page if you proceed to obtain business financing through them.
