How To Get A Business Line Of Credit In 5 Steps – Forbes

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Published: Jan 5, 2022, 1:24pm
A business line of credit is a handy way to access financing as needed rather than receiving a lump-sum payment such as with a small business loan. Business lines of credit can help you manage cash flow, buy inventory or pay for an unexpected expense. Better yet, you only pay interest on the amount you use, not the full approved credit line.
While the application process varies depending on the specific lender, you can follow these general steps to get a business line of credit.
When you apply for a business line of credit, you’ll have to determine how much credit you need. Available loan amounts depend on the lender but typically range from $2,000 to $250,000. Because you don’t pay interest on the full amount and only on what you use, it’s acceptable to ask for a higher limit than you’ll likely need—as long as you don’t get greedy and spend more than you can afford.
If you need access to more funds after you receive your initial credit line, you can request a line of credit increase. Depending on your business’s revenue and credit history, the lender may approve this request or ask for collateral—something of value it can repossess if you fail to repay—to secure the line of credit.
While there are several different factors that lenders consider, there are a few that are most vital, including:
Once you understand how much financing you need and your eligibility, it’s time to research lenders that match up with that information. Be sure to compare different lenders’ maximum credit limits, repayment terms, minimum requirements and APR ranges, too.
There are a few different types of institutions that you can apply through:
Once you find your preferred lender, it’s time to gather the necessary documents to prepare for the formal application process. This will usually include the following:
If you’re unsure what documents are needed, contact the lender before applying.
Lastly, submit your application online or in person. Turnaround times vary by lender, and it can take as little as five minutes or as long as several days to get a decision. Your lender may also require you to provide additional documentation after reviewing your application.
Common information your lender may ask for includes:
If your loan is approved, a lender will send you a loan agreement to sign before issuing your line of credit you can draw from.
Like with any other loan application, it pays to be accurate when you complete a business line of credit application. Make sure to double-check the numbers, contact information and other relevant details before submitting. If you include an error, it could delay the process or hurt your chances of being approved.
When listing your contact information, use an email address or phone number that is frequently checked. The lender may contact you with additional questions, so it’s essential that you don’t miss a phone call or email.
Lenders that offer business lines of credit charge a variety of fees and penalties. Before you finalize an application, compare fees and interest rates to ensure you’re getting the best deal.
When you draw money from the business line of credit, you will pay interest on the withdrawn amount. The interest rate may be either variable or fixed: A fixed rate will stay the same throughout the life of the loan while a variable rate will fluctuate depending on the overall market interest rate. Rates typically range from 10% to 99%.
Some lenders may charge a draw fee, which is incurred any time you draw upon the line of credit. The draw fee varies based on the lender but is usually between 1% and 2% of the amount withdrawn at the time. For example, if your line of credit has a draw fee of 2% and you draw $10,000, the draw fee is $200.
Accessing your business line of credit will likely come with a payment processing fee if you choose to have the money sent via wire transfer. This fee is usually between $15 and $35. You can typically avoid this fee by choosing standard ACH processing, but you may have to wait an extra one or two business days to receive the funds.
The lender will usually charge a late fee if you miss the payment due date. This is typically a percentage of the payment amount and depends on the particular lender.
A line of credit typically has a fixed end date. If you want to close out the line of credit before that date, you may have to pay a termination fee between 1% and 2% of your loan amount. However, not all lenders charge a termination fee.
If you repay the withdrawn amount ahead of schedule, some lenders may charge you a prepayment penalty, usually between 3% and 5% of the balance. Look for a lender that does not charge a prepayment penalty.
Trying to find a line of credit for your company? Here are the top online business line of credit lenders.
BlueVine offers business lines of credit between $5,000 and $250,000, and charges interest rates starting from 4.8%. Terms are either six or 12 months. To qualify for a BlueVine line of credit, you must have a minimum personal credit score of 600, $10,000 per month in revenue or $120,000 annually, and be in business for at least six months.
OnDeck offers lines of credit between $6,000 and $100,000 with 12-month repayment terms that reset after each withdrawal—payments are due weekly. To be eligible for an OnDeck line of credit, you must have a minimum personal credit score of 600, business annual gross revenue of at least $100,000 and have been in operation for at least a year.
Kabbage offers business lines of credit between $1,000 to $150,000 with six-,12- or 18-month terms. To qualify for a Kabbage line of credit, you must have a minimum personal credit score of 640 and have been in operation for at least a year. Kabbage does not disclose its annual revenue requirements.
Secured lines of credit require collateral—something of value that the lender can repossess if you fail to repay your debt. Unsecured lines of credit, on the other hand, require no collateral. However, because lenders take on more risk through unsecured lines of credit, they often come with higher interest rates.
A business line of credit offers more flexibility than a business loan. When you take out a loan, you receive the amount all at once, repay it over time and owe interest on the full amount. With a business line of credit, you can choose to access it at any time. Plus, you only have to pay interest on the amount you withdraw, regardless of the total line of credit amount.
Zina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.
Jordan Tarver is the assistant editor for loans at Forbes Advisor. Before joining Forbes Advisor, Jordan was an editor and writer for multiple finance sites, focusing on loans, credit cards and bank accounts. His goal is to create actionable content that enables people to make sound personal financial decisions. When he is not working on personal finance content, Jordan is a self-help author and world traveler who helps people experience the world and discover themselves.

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