The Only Guide to Business Lines of Credit You’ll Ever Need


If your business needs more capital than you can get from a credit card but more flexibility than a bank loan, you might consider a business line of credit. A line of credit offers numerous benefits, from providing access to capital without charging overwhelming fees or interest to revolving annually for convenient continued use.

Often, businesses use lines of credit to assist with uneven cash flow, but you might also take out a specific line for purchasing assets, financing construction, or some other expensive business endeavor. More than 47 percent of small businesses currently utilize at least one line of credit, demonstrating how ubiquitous and useful this financial tool is.

Still, before you jump head-first into lines of credit, you should better understand the qualifications and procedures for acquiring one of your own. This definitive guide should help you get prepared for your small business’s first-ever line of credit.

How Much Capital Do You Need?

Before you apply for a business line of credit, you should have a good idea of how much you will utilize your line. If your line’s balance fails to provide the capital you need, you could be wasting time and money on this financial product. Typically, lines of credit offer less capital than term loans – which makes them ideal for small, repeated, or emergency purchases rather than large investments. With some research, you can generate a rather reliable estimate of your capital needs to help you acquire the right line for you.

When Do You Need Extra Capital?

If you urgently, desperately need capital right now, applying for a line of credit won’t help you. At the very least, it will take about 10 days for lenders to process your request, and you might not get access to your line for as much as a month. However, if you put in effort to establish your line of credit now, when you have an urgent capital need in the future, your line of credit will provide the fastest, easiest way to obtain cash.

What Do You Need to Apply?

Lenders tend to have high qualifications for lines of credit because they are such flexible financial products. In addition to basic information about your business, including the name and contact details, you will need information about every owner of your business as well as data about sales and profits in recent months. For secured lines of credit – which offer lower interest rates and higher balances – you will also need some form of collateral. However, you can avoid providing collateral by applying for an unsecured line of credit.

How Much Will You Need to Pay?

The amount you will pay in fees and interest rates depends on a number of factors. For one, different lenders are able to offer different pricing structures; typically, large banks charge more than small online credit providers. For another, your business’s creditworthiness will determine many costs. Typically, interest rates for business lines of credit range from about 1 percent to around 10 percent, but many are adjustable and will change over the course of your arrangement. Still, having nearly unlimited access to capital is typically more valuable than avoiding minor costs like fees and interest.

Where Do You Access Your Line?

Loan money is often directly deposited into your business’s bank account. You use a piece of plastic to access your credit card balance. When it comes to your business line of credit, you might:

  • Make transfers from the line to your account online or over the phone.
  • Use personalized checks that draw money from the line.
  • Use access cards that generally look and feel like credit cards.

Individual lenders might have even more options for accessing your line of credit, so if there is a method that is especially important to your business, you should do your research to find the best lender for you.

When Do You Pay?

Unless there are opening fees or annual fees, which are typically paid at the start of your line as well as every year thereafter, the payments you make on your line of credit depend entirely on your usage of it. For example, if your income is great enough to avoid drawing down on your line in June and July, you might pay nothing for those months. However, any capital you take from your line of credit must be paid off in monthly installments. Further, if your line of credit is not revolving, your lender may require all remaining unpaid balance be settled upon the conclusion of your contract.