A business line of credit can provide essential capital for small-business owners and flexibility that a regular business loan just doesn’t have.
With a business line of credit, you’re authorized (but not required) to borrow up to a specific amount — say, $10,000 — and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit.
The concept is similar to a business credit card, but getting a cash advance from a credit card is pricier. A line of credit also differs from a traditional small-business loan in that with a loan you receive a lump sum of cash upfront and repay it over weekly or monthly installments.
JUMP TO RECOMMENDATIONS:
- If you have bad credit and at least $60,000 annual revenue
- If you earn at least $200,000 annual revenue, have 600+ personal credit score
- If your annual revenue is $150,000+ and you need to finance inventory purchases
- If you have 600+ credit score and have been in business at least two years
Having access to a business line of credit can help you better manage cash flow, handle unexpected expenses, buy inventory, or fund other short-term business needs. Business lines of credit are also typically unsecured debt, which means you won’t have to provide collateral (assets, such as real estate, that can be sold by the lender if you default).
Here are a few of the best options for small-business owners seeking a line of credit, and the qualifications required by each lender.
Kabbage offers the best business line of credit if:
- You have bad personal credit
- You have a business checking or PayPal account
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | N/A | N/A |
| Time in business | 1 year | About 2 to 5 years |
| Annual revenue | $60,000 | About $100,000 to $10 million |
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Kabbage provides lines of credit from $2,000 to $100,000, with the amount borrowed repaid monthly over a period of six or 12 months at an APR of 32% to 108%. It’s important to note that each time you draw on your line, Kabbage generates a new six- or 12-month term loan with its own fee structure. So if you withdraw funds twice, you’ll pay fees on each loan separately.
Kabbage’s line of credit is a good option for small-business owners who have bad personal credit, as the lender does not require a minimum credit score to qualify. Check out other bad credit business loan options.
Also, Kabbage is one of the few lenders that does not require a personal guarantee, which is a written agreement pledging your personal assets to repay a loan if the business can’t.
Although collateral and a personal guarantee aren’t required, you still need to meet other qualifications, including annual revenue of at least $60,000 and at least one year in business, and you must have a business checking or PayPal account Kabbage can link to.
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OnDeck offers the best business line of credit if:
- You can’t wait for a traditional loan
- You’re able to sign a personal guarantee
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Minimum qualifications | Typical borrower |
|---|---|---|
| Personal credit score | At least one owner with 500 or higher for term loans and a majority owner with 600 or higher for lines of credit | A personal credit score over 600 |
| Time in business | At least 12 months | Median of 7 years |
| Annual revenue | $100,000 or more in the last year for term loans and $200,000 or more for lines of credit | Median of $600,000 |
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OnDeck is a solid choice for business owners who need fast business loans or lines of credit for working capital or emergencies. The online application takes about 10 minutes, with funding as soon as 24 hours. You can borrow up to $100,000, with draws repaid weekly over a period of six months at an APR from 14% to 36%.
OnDeck charges a $20 monthly maintenance fee on its line of credit, but that fee is waived for six months if you draw $5,000 or more within the first five days of opening your account.
To qualify, borrowers need to have been in business at least 12 months, have a majority owner with a personal credit score of 600 or higher with no personal bankruptcies in the last two years, and have annual revenue of $200,000 or higher. Your business also cannot be on OnDeck’s restricted industries list.
Although collateral or liens aren’t required for OnDeck’s line of credit (unlike the company’s term loans, which require a blanket lien on business assets), you will be required to sign a personal guarantee.
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Dealstruck offers the best business line of credit if:
- You want to finance inventory purchases
- You don’t mind signing a personal guarantee or a lien on your business assets
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | 600 | 660 to 700 |
| Time in business | 1 year | About 5 years |
| Annual revenue | $150,000 | About $1 million to $2 million |
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Dealstruck is a lender that offers an inventory-based line of credit that finances 100% of your inventory purchases up to $500,000. Every draw you make on the line of credit is repaid weekly over a period of 24 weeks at an APR of 11% to 22% plus the prime rate, but you can repay the debt in full to save on interest if you wish. It’s an ideal option for businesses that have recurring inventory purchase needs but don’t have the cash on hand to buy the inventory.
To qualify, borrowers need to have a minimum personal credit score of 600, no bankruptcies in the past two years, have been in business — profitably — at least one year, and earn at least $12,500 a month in revenue. You need to sign a personal guarantee, and Dealstruck takes a lien on business assets. Learn more about Dealstruck’s application process in our step-by-step guide.
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Lending Club offers the best business line of credit if:
- You have strong personal credit
- You need to manage cash flow or handle unexpected expenses
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | 600 | 700 |
| Time in business | 2 years | 11 years |
| Annual revenue | $75,000 | $1 million |
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Lending Club’s line of credit provides from $5,000 to $300,000. It’s a good option for managing cash flow or handling surprise expenses, as there’s no cost to open the line of credit, and there aren’t any monthly maintenance or inactivity fees.
The only costs for Lending Club’s line of credit are a 1%-2% draw fee each time you borrow and an annual interest rate on borrowed funds from 6% to 21.6%, which is equivalent to an APR of 8% to 32%, according to Tom Green, Lending Club’s vice president of small business.
Draws on your line of credit are repaid over a maximum of 25 months, but you can choose to pay it back sooner to save on interest, with no prepayment penalties.
To qualify, you need to own at least 20% of the business, have a minimum of $75,000 in annual revenue, been in operation at least two years, have a minimum personal credit score of 600, and no recent bankruptcies or tax liens. Only lines of credit over $100,000 require collateral. The company files a UCC-1 lien on your business assets, which means it can seize those assets if you fail to repay the loan.
Business line of credit: Next step
As you shop for a business line of credit, carefully compare the terms of each product before you apply, including the APR, the maximum credit limit offered, the length of the repayment term, and collateral or personal guarantee requirements.
Find and compare small-business loans
NerdWallet has created a comparison tool of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans tool. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This post was updated. The post originally was published on Jan. 19, 2016.
Image via iStock.
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