Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 11, 2021

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Summary

  • Business lines of credit come with a set limit you can borrow
  • Banks usually provide a business line of credit for $250,000 or less
  • You only make payments to a business line of credit when you use it

You just started a business, but the bank has denied your small business loan request. There’s still hope because you can establish a business line of credit.

Since banks are less likely to give you businesses a small loan, a business line of credit may be the next option. But is a business line of credit a good idea? And what are business lines of credit?

Continue reading to learn more about business lines of credit. Enter your ZIP code in the free comparison tool to start comparing loans today.

What are business lines of credit?

A business line of credit is like the high-quality version of a business credit card, but you have access to a higher credit limit, and you’ll pay lower fees for withdrawing cash from the business line of credit.

Business lines of credit are also known as revolving loans that meet short-term business needs like repairing equipment or financing campaigns.

Business lines of credit may require collateral, such as:

  • Checking and Savings Accounts
  • Mortgages
  • Debit Cards
  • Credit Cards
  • Personal Loans
  • Motor Vehicle
  • Real Estate

Your business line of credit can also provide cash to your bank account if you ever need to withdraw from it. Business lines of credit are as low as $1,000 and can reach $250,000.

Keep reading to learn answers to frequently asked questions.

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What is the business line of credit requirements?

To get a business line of credit, you’ll need to be in business for at least six months and earn $25,000 in annual revenue.

Each bank or financial institution varies. Here’s a list of general requirements to obtain a business line of credit.

It helps if you have three or more of these items before getting a business line of credit. If you lack in any of these, you may not qualify for a business line of credit.

Types of Business Lines of Credit

Let’s take a look at the two types of business lines of credit.

  • Secured Business Line of Credit – This type requires you to present collateral to secure a line of credit
  • Unsecured Business Line of Credit – You can qualify for this line of credit without using specific assets, such as your home or other property

A secured business line of credit doesn’t require long-term assets. Most banks will ask for short-term collateral, such as accounts and inventory from your business.

An unsecured business line of credit doesn’t require long-term or short-term collateral. However, your business credit score and other financial track records should be stable.

How does a business line of credit work?

Your business line of credit works like a credit card. You only pay interest on the money you borrow. However, there’s a limit to how much you can get on your business line of credit.

Like any line of credit, you pay monthly payments on the money you use. Never exceed your limit, and keep an eye on interest.

Who provides a business line of credit?

Banks are usually the institutions that provide business lines of credit. However, some finance companies offer a business line of credit. Shop around until you find what you need.

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When should a business get a line of credit?

Get a business line of credit as soon as possible. Insurance can cover accidents and general liability, but it can’t provide urgency like a business line of credit.

Some purchases are more significant than others, and it’s not a good idea to spend too much money at one time. Therefore, a business line of credit can provide solutions to bigger, long-term purchases.

What’s the difference between a business term loan and a business line of credit?

A business term loan is a loan you have to pay in full within a fixed period. Meanwhile, a business line of credit is a fixed amount of money you can use as long as you need it.

Business Lines of Credit: What’s the bottom line?

A business credit card, by definition, doesn’t have the buying power of a business line of credit. The better your financial profile, the higher your business line of credit.

Maintain your business line of credit by staying current with monthly payments.

Now that you know more about business lines of credit, you’re ready to shop around. Use our free online quote tool to start comparing multiple companies.