What Is A Business Line Of Credit And How Does It Work?

Cash flow is the lifeline of a business -- and the biggest pressure point. A recent QuickBooks survey of 3500 small business owners found that 60% said cash flow was a problem for their business. Part of the reason that cash flow is such a challenge is that newer businesses don't have business credit, making it difficult to qualify for funding. And even if a business loan is possible, the process is slow, causing delays in getting vendors, employees and suppliers paid.

A business line of credit is a good alternative to a traditional loan, especially when unexpected expenses pop up. It's a hybrid between a credit card and a loan, eliminating the drawn-out underwriting process when you need capital. Small businesses can benefit from having an available line of credit.

The best business line of credit lenders

The bank you currently have a business account with is a good place to start. However, traditional banks are more stringent about lending, and it may be difficult for a newer business to get a business line of credit. The following lenders offer business lines of credit:

BlueVine

BlueVine's lines of credit are meant to fund quickly so your business can bridge a cash-flow gap. The APR starts at 4.8% but can climb significantly based on the credit line amount and company/personal creditworthiness. BlueVine provides as much as $250 000. To apply, you'll need a credit score of 600 or higher and be in business for at least six months, with $10 000 in monthly revenue. Each time you draw funds, you'll need to pay them back in weekly or monthly installments over six or twelve months.

Credibly

Credibly is a good resource for small business owners with less-than-average credit. Applicants may be able to qualify for a line of credit for their business with a personal credit score of 560 or higher. In addition, lines of credit are available for as much as $250 000 although terms may be one of the shortest at 26 weeks (six months). Rates start at 4.80% APR. 

However, applicants with poor credit may see a higher interest rate. You can prequalify for a Credibly business line of credit as long as your business has been running for at least six months and you have an annual income of $50 000 or more.

OnDeck

OnDeck is an online lender providing business lines of credit of $6000 to $100 000 to small business owners. Its biggest selling point is fast funding -- OnDeck promises to fund you in seconds, even on nights or weekends. 

However, the speed and convenience of an OnDeck business line of credit comes at a cost -- the APR starts at 35.9%, depending on your creditworthiness and company financials.

Wells Fargo

Wells Fargo has two lines of credit: BusinessLine for companies older than two years and Small Business Advantage for newer businesses. The BusinessLine awards as much as $100 000 while the Small Business Advantage line of credit has a maximum limit of $50 000 and five years of credit. 

Rates start at Prime Rate plus 1.75%. Wells Fargo doesn't require collateral, but you'll need to provide personal and company financials.

Business line of credit pros and cons

A business line of credit can be a great financial resource for developing and established businesses. However, there are benefits and drawbacks worth considering before you apply for one.

Pros:

• You'll only need to apply one time for funding

• You can draw on the revolving credit line whenever you need capital

• It can help build business credit

• You only pay interest on the outstanding balance

• Lines of credit are typically available for several years -- as long as you keep up with the payments, the credit line should be available

Cons:

• The credit limit may be smaller than the amount you'd receive for a small business loan

• There is usually an annual fee

• The lender may cancel the line of credit or reduce it

• Interest may be higher than a business loan

• You may need to provide collateral

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