A business line of credit is one of the most common financing options out there.
You can tap into a business line of credit any time you want to and only have to repay the amount you’ve taken.
Let’s take a look at the best business line of credit options, including unsecured business lines of credit and secured business lines of credit.
But there are other alternatives that many consider superior to business lines of credit. For example, small business loans can give you more flexibility and better terms.
Business Line of Credit vs. Loan
A business line of credit certainly has positives, but there are a lot of downsides, too. That’s why many businesses prefer to get small business loans.
Here’s a quick chart that can help you understand which one’s the best fit for you.
|Business Line of Credit||Small Business Loan|
|Difficult qualification requirements||Easier qualification requirements|
|Lower amounts available||More loan amounts (and you receive a lump sum)|
|There is no technical repayment term||Flexible repayment terms that are easier to budget around|
|You might be able to access a credit line increase||You might be able to access more capital|
|Credit line interest rates are usually steeper||They tend to have lower interest rates|
|You may need to put up collateral or a personal guarantee to secure the line||Some loan alternatives require collateral (Camino Financial doesn’t!)|
One of the biggest downfalls of a business line of credit is the risk it presents to gain a lot of debt.
Just like a business credit card, it’s very easy to draw down more money from a line of credit. However, since this isn’t a term loan, the outstanding balance keeps revolving and rolls over each month, with high interest charged.
That’s why many small businesses find that a small business loan is a much better option.
Depending on the financial institution you choose, small business loans could offer much better terms as well as financial certainty.
A small business loan is the best business line of credit alternative
While a line of credit can be very beneficial to some businesses, they aren’t always a great fit. For most business owners, the best business line of credit alternative is a small business loan.
Camino Financial’s small business loans are a great example. If you need money to help fund your business or help it grow, our small business loans can help you along the way.
We offer a straightforward application process and a quick decision—which is entirely online. You can apply anytime, anywhere.
We offer small business loans from $5,000 and up to $400,000, with flexible payment options and affordable interest rates.
We also don’t require you to have an extensive credit history, making our small business loans a much better option for newer businesses than a line of credit.
Finally, we don’t require our applicants to have a Social Security number to apply. An ITIN is all you need.
How to Get a Business Line of Credit
If you want to get a business credit line, you’ll find the requirements and steps in this section.
Small Business Line of Credit Requirements
Approval processes for each small business line of credit are different, and each lender will have its own. However, there are some general requirements that most financial institutions abide by.
Time in business
While many lenders will cater to newer businesses, almost all of them will require the business to have been open and operating for at least six months.
This means that a line of credit is typically not a good fit for a start-up company that is still in the organization stages.
Most lenders will also require that the business has at least $25,000 of annual revenue to qualify.
If you’re applying with a bank, they will most likely require you to have a business bank account with them.
Many will have a minimum acceptable credit score for the applicant.
For example, online lenders may have lower requirements (like a minimum credit score of 550 or higher), while traditional financial institutions may require personal credit scores of 650 or higher.
Many other lenders will also review your business credit scores.
This one depends on the type of line of credit you get.
A secured business line of credit will require collateral to open. This guarantee could be in the form of assets, like your home or other physical, tangible assets the business owns. If you default on your loan, the lender will take the collateral to recoup their losses.
On the other hand, when you apply for an unsecured business line of credit, you will not be required to put up any collateral, just like most business credit cards.
Camino Financial small business loans have fewer requirements than many line-of-credit issuers.
Applying for a Business Line of Credit
The process for applying for a line of credit is very similar to any other type of personal or business loan.
The first step is to decide how much you think your business would need in terms of a credit limit. Then, research the various companies that offer a business line of credit that would meet your requirements.
Make sure also to check the fees they charge (like a late payment or monthly maintenance fee).
Once you have selected a company, it’s time to start the application process. Today, much of this process can be completed online, although you may have to go into a local branch to show proof of documents.
After you have filled in all of the pertinent and basic information about your business and yourself, the financial institution will often require you to provide documentation as proof that you are worthy of the business line of credit.
You may have to provide copies of your business and personal tax returns, business financial statements and bank account, a balance sheet, and maybe even some profit-loss statements from recent years.
The financial institution will also likely run a credit history check on the business and you personally.
Once all of this is submitted, you should receive an official decision in a few business days. Some online lenders will work a little quicker than traditional financial institutions for the approval process and availability of the business line of credit.
Camino Financial has a much easier lending process. Try it for yourself!
Top 6 Small Business Lines of Credit
There are many business lines of credit options—both secured and unsecured. Business owners will find a wide variety of options for a business line of credit, from major banks and credit unions to online lenders.
Here are some of the best business lines of credit, with full details on what lenders offer.
Wells Fargo has two different business lines of credit, both of which are unsecured.
The first type, which it calls the BusinessLine, is available for any business that has been established for two years at least. There is a higher borrowing credit limit of up to $100,000 for this type.
A line of credit for new business is also offered through Wells Fargo. It’s called the Small Business Advantage and offers up to $50,000. They also provide a smaller business line of credit of up to $10,000 that doesn’t have an annual fee.
The terms available are up to five years for their revolving lines of credit. The line of credit rates through Wells Fargo start at the current Prime Rate plus 1.75%.
Bank of America
Bank of America offers a secured line of credit starting at $25,000. Most of their lines of credit don’t require collateral unless they’re $100,000 or more, though.
All of their funding offerings are subject to an annual review period.
You can get a discount on your interest rate as well if you have a business deposit account with either Bank of America or Merrill Edge or if you have a Merrill Lynch business investment account.
To qualify, you have to be in business for two years. In addition, for unsecured credit lines, you have to have annual sales of at least $100,000. For secured lines, your annual sales must be at least $250,000.
PNC Bank offers a few different secured business line of credit options.
The first offers a long seven-year repayment period where you only have to make payments on the interest. After that period, you’ll have an additional 10 years to repay the amount of money you drew down from the line of credit.
The amount offered through this secured line of credit ranges from $10,000 and all the way up to $1 million. You can use either a commercial property that the business owns and occupies or a personal residence as collateral.
They also offer other secured lines of credit that have even higher maximums, if that’s something you need. These lines are subject to annual renewal reviews as well as collateral that can include things such as business equipment.
Fundbox is an online lender that provides an alternative option for a business line of credit to some of the big financial institutions.
One of the most significant advantages to a line of credit with Fundbox is they try to work with newer businesses, accepting applications from companies that have been in operation for six months or more.
They offer a credit line for anywhere between $1,000 and $150,000, which provides a lot of flexibility for small business owners when they need funding. The interest rate on their lines of credit ranges between 4.66% and 8.99%.
One of the most significant downsides to a line of credit with Fundbox is they don’t have a long term: they only offer 24 or 12-week repayment periods, with the longer period offering a higher interest rate.
What’s more, you have to make payments every week on the money you borrow, with Fundbox charging interest every week.
Another online funding option is a company called Credibly.
They specialize in offering business lines of credit to applicants who don’t have great credit. In fact, they accept applications from people with a minimum credit score of 560 or more.
They offer business lines of credit of up to $250,000, with interest rates that start as low as 4.80%. Their repayment terms are typically 26 weeks, though they may offer alternative options for repayment.
Another downside is you could be required to pay what’s known as an origination fee just to open your business line of credit. Whether you have to pay this expensive fee or not will likely depend on what your credit score is.
OnDeck is an online financing company that offers quick online business lines of credit.
When you request to draw down money from your small business line of credit, the company will transfer the funds into your account the next day. This is a huge advantage.
Their credit line can range between $6,000 and $100,000, which is excellent for small businesses especially. However, their interest rates are rather high, ranging from 35.9% to 48.06%.
In addition, their repayment period can be as much as 12 months.
Grow Your Business with the Best Funding
A business loan is one of the best forms of financing available to small businesses because you receive a lump sum, which has more investment flexibility.
At Camino Financial, we do our best to serve the small business community by offering financial products that help them succeed. We designed our loans to help you finance your business expenses.
Request a quote for a business loan today and get started on growing your small business.
Business Line Of Credit FAQs
What is a business line of credit?
A business line of credit is a form of financing that offers a revolving line of credit businesses can use for whatever they want.
The line of credit offers a maximum amount of money they can draw down and then use for whatever purposes they need.
Repayment terms work like a business credit card, and you are only charged interest on the outstanding balance.
What is revolving credit?
Revolving credit means that there is no set end date and definitive payment to the line of credit.
Unlike a small business loan with monthly payments and an end date, the outstanding balance with revolving credit rolls over from month to month.
This means if you don’t pay down enough each month, it could continue rolling over into eternity.
How does a business line of credit work?
A line of credit works like a lot of business credit cards do.
A business owner will apply for a business line of credit, just like other forms of loans, and receive approval.
Then, the bank gives them a maximum credit line, and they can borrow any amount they wish, as long as they don’t exhaust the entire credit line.
They then make monthly payments based on whatever the outstanding balance is. They pay interest if they draw funds.
What’s the average interest rate on a business line of credit?
The interest rates for a business line of credit can vary greatly. They can start as low as 8% but can go all the way up to more than 50% in some cases.
Remember that you only pay interest on the financing you used, not on the credit limit.
Even when you have a lower interest rate, though, it can be pretty expensive, as the interest is charged on the revolving balance each month.
Secured vs. unsecured business line of credit: what’s the difference?
A secured business line of credit requires you to put up collateral to get it, such as a personal or business property you own. Then, if you default on the loan, the financial institution takes possession of that collateral.
An unsecured line of credit doesn’t require collateral; you simply apply and get approved without having to put up any assets.
Should I get a business loan or line of credit?
There are some instances in which a business line of credit could be beneficial to your business.
They have better terms, offer more money, have easier qualification requirements, and cost less in the long run.