A business line of credit is a great tool to have in your small business toolbox. They’re flexible, they’re usually cheaper than loans, and they provide an extra layer of security if unexpected short-term expenses come up. But there’s a ton of options.
Should you go to the same bank you got your small business loan from a few years ago? Should you shop for lines of credit based purely on interest rates? Or are you better off just using business credit cards after all?
Further reading: How Does a Business Line of Credit Work?
How to shop for a business line of credit
There are six key variables you should look out for when shopping for a business line of credit:
The monthly interest rate, which is the rate at which you’ll make monthly interest payments on money you draw from the credit line. (This will sometimes be expressed as Prime + some rate—Prime being simply what banks charge their customers who have the best credit.)
The annual percentage rate (APR), which is the annual interest rate you will pay on any money you draw from the credit line.
Speed—i.e. how long it usually takes to get approved or rejected for a line of credit.
The credit limit, or how much total funding you can draw from the credit line.
The monthly payment amount, similar to the minimum monthly payments on your credit card.
How good the repayment terms are, i.e. how long you have to repay any money you spend.
Best bank business lines of credit
If you bank with one of the big banks—JP Morgan Chase, Wells Fargo,TD— that’s a good place to start your search (banks usually refer to these as a “revolving line of credit”).
They’re generally the least risky choice for credit lines, if you can qualify, that is.
These banks usually offer borrowers an unsecured business line of credit for business owners, which doesn’t require you to put up any collateral.
These credit lines have significantly lower interest rates and APRs than online lenders, have lower monthly payments, and generally have more generous repayment terms.
The application process at traditional banks for a credit line usually involves a sit-down meeting with a representative from the financial institution, so getting approved for these can take some time.
Because they’re unsecured loans, they usually require a high personal credit score, and might also require a UCC lien as well.
You’ll also need to send them financial statements for at least the last two years of business operations—with an eye specifically for annual revenue, working capital and cash flow—as well as your personal and business credit score. That makes traditional lenders a more suitable option for established businesses.
Comparing the best bank lines of credit
|Wells Fargo||Bank of America||JP Morgan Chase||TD Bank|
|Interest rate:||Prime + 1.75-9.75%||7%+||Determined on case by case basis||Determined on case by case basis|
|Approval speed:||~3 weeks||~2 weeks||~4-5 weeks||~1-4 weeks|
|Repayment terms:||1-5 years||1 year||Ongoing, monthly||Ongoing, monthly|
|Additional fees:||Annual fee: $95-175||Startup fee: $50||Annual fee: $150-500||None|
|Credit type:||Unsecured line of credit||Unsecured line of credit||Unsecured line of credit||Unsecured line of credit|
|Recommended credit score:||700+||670+||700+||700+|
Best online lender for a business line of credit
Traditional lenders aren’t the only place you can go to get a business line of credit these days. A rising group of online lenders is giving traditional banks a run for their money, sometimes beating out traditional services in speed, convenience and price.
If you’re a new business with little to no track record and you get turned down by a traditional lender, you might consider applying to an online lender. Provided you clear their credit and asset requirements, these services can provide you with funding the same day you apply.
Here are the pros and cons of going with an online lender:
The name of the game with online lenders is convenience. If you don’t want to go through two years of business data or suffer through an in-person meeting, online lenders can be a great way to obtain funding fast.
These places also usually require lower credit scores than traditional institutions, and can offer you a higher credit limit than traditional lenders.
These companies will usually offer secured credit lines, which require you to put up some kind of collateral or personal guarantee.
They also tend to have significantly higher interest rates than those offered by banks, have higher required monthly payments, and generally have more stringent repayment terms. Falling behind on payments with one of these companies can get painful quickly.
Top online lender business lines of credit
|Approval speed:||~3 weeks||1 business day||Same day||Same day|
|Credit limit:||$0-100,000||$2,000-$250,000||$1,000-100,000||Up to $250,000|
|Repayment terms:||6 months||6-18 months||3-6 months||6-12 months|
|Additional fees:||Monthly maintenance fee: $20||None||None||Wire fee: $15|
|Credit type:||Secured line of credit||Secured line of credit||Secured line of credit||Secured line of credit|
|Recommended credit score:||600+||550+||600+||600+|
SBA business line of credit
If you have poor credit and get turned down by private lenders, you might still be able to get a line of credit—provided you can put up some collateral/personal guarantee and deal with a higher interest rate—with the Small Business Administration (SBA).
The SBA is a government agency that connects small businesses to funding. One of its most popular programs is CAPLine, which provides four different lines of credit to businesses that might be struggling to get private financing:
A seasonal line of credit, designed for businesses with increasing seasonal labor costs and inventory expansions.
A contract line of credit, tailored to businesses with high labor and materials costs.
An asset-based line of credit, designed for businesses that have had trouble qualifying for traditional funding.
A builder’s line of credit, tailored to businesses operating in the real estate and construction industry.
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