05/01/2023 | News release | Distributed by Public on 05/01/2023 09:22
Published: May 01, 2023
Adding new, in-demand items to your shelves. Purchasing updated machinery to expand your operations. Buying office gear for your new hires. Making these investments isn't always possible for small businesses, especially when you're on a limited budget.
Taking out a one-time business loan and going into long-term debt is one option - but it isn't the only one. As an alternative, you might consider opening a business line of credit that allows you to access funding whenever you need it.
That convenience and flexibility is likely a top reason 76% of businesses sought this form of financing over credit cards, invoice factoring, and other methods.
But what's the best business line of credit to pursue for your business?
A business line of credit is a financial tool that offers businesses access to cash in an open-ended manner, without needing to take out a loan.
A business line of credit works like this:
How long you have to repay your LOC will depend on the terms you agree to. Some lenders require repayment in as little as three months, while others may extend repayment for years. Likewise, some lines of credit must be repaid annually.
Business lines of credit come in two options: unsecured and secured.
An unsecured line of credit isn't backed by collateral (e.g., business assets the lender can take if you default on payments). These are typically more difficult to qualify for, and often carry a higher interest rate compared to a secured line of credit. It's a great option if you don't have any collateral to offer or don't want to risk losing an asset if you can't repay the loan.
Unsecured lines of credit tend to have higher interest rates, since they involve more risk for lenders. However, if you've been in business a long time and have an excellent credit score, your interest rates will likely be lower than a business that's been around for less time or that has a worse credit score.
A secured line of credit is backed by collateral - usually property or equipment - that the lender is entitled to take possession of if you're unable to repay your loan. This translates into less risk for lenders, and therefore lower interest rates compared to an unsecured line of credit. However, if you can't repay the loan, you could lose the asset used as collateral.
Applying for a business line of credit has a similar process to other financing options. The requirements differ depending on the lender, but many require:
Now that you know what lenders look for when approving a company for a business line of credit, it's time to review your options.
Business lines of credit are available through many different lenders, including large national banks, regional banks, credit unions, and even online lenders.
Here's a list of the top lenders for business lines of credit.
Fundbox is one of the best options for businesses seeking an unsecured line of credit. It offers smaller lines of credit ranging from $1k to $100k, with interest rates starting at 4.66%.
To qualify, a business must be at least six months old and have a business checking account, which you'll connect with your Fundbox account to verify your income and speed up the process of determining whether you meet revenue requirements.
Fundbox has an automated underwriting process to qualify you for a loan, which means faster approvals (sometimes within hours).
OnDeck Capital offers unsecured lines of credit ranging from $6k to $100k, with APRs starting at 29.9%. To qualify for an OnDeck line of credit, businesses need a personal credit score of 625 or higher, be at least one year old, and have an annual revenue of $100k or more.
OnDeck's short-term and revolving lines of credit make it an appealing option for businesses seeking quick financing options.
American Express Business Blueprint recently launched the American Express Business Line of Credit, previously known as Kabbage from American Express and Kabbage Funding. This line of credit is available to small-business owners who can apply for a credit line ranging from $2k to $250k, with repayment terms of six, 12, or 18 months.
Note that there's a loan fee for every month you have an outstanding balance. The total monthly fees charged for the entire loan term range from:
American Express Business Blueprint offers other useful tools for small-business owners, such as its mobile app that provides comprehensive cash flow insights.
Wells Fargo is a well-known bank that offers secured and unsecured business lines of credit ranging from $5k to $1m.
There are two options for unsecured business lines of credit - one for those in business for at least two years, and another for businesses under two years old.
Here's the difference:
U.S. Bank is another well-known bank that offers secured business lines of credit with limits up to $1m. It offers four types of business line of credit programs:
BlueVine is a fintech company that provides financing solutions to small businesses across the United States. One of its key offerings is a business line of credit, ranging from $6k to $250k.
There are two payment structures available for the business line of credit: Flex 6 and Flex 12.
Customers who make timely payments may be eligible for a credit line increase after 45 days on Flex 6 or 90 days on Flex 12.
However, BlueVine charges weekly or monthly fees for its line of credit, with standard pricing at 1.7% per week or 7% per month for line of credit draws. It's important to note that BlueVine requires businesses to generate $40k/mo. or $480k/yr., and you must be a corporation or LLC. If you filed for bankruptcy within the last three years, you won't qualify.
When choosing the best business line of credit for your business, there are several factors to consider:
The best business line of credit for you depends on your individual needs and goals. Be sure to compare various lenders and take the time to understand their terms and conditions before deciding.