Best Business Line of Credit to Get In 2023

In this review, our experts highlight the rates, fees and terms of each lender and explain what makes them a good option. We also share potential downsides of each lender, and provide a rating methodology you can use to select the best option for your needs.

Nearly 25% of borrowers turn to online lenders to get the financing they need, according to a report from the Federal Reserve. However, not all lenders offer the same terms for business loan products and lines of credit.

A Business Line of Credit (LOC) is a flexible, short-term financing option used to cover payroll, purchase inventory, handle emergency expenses, finance growth opportunities, and more. It differs from a small business loan in that instead of being given a lump sum of money, you only draw on the specific amount you need. 

How We Choose the Best Business Line of Credit

When choosing a line of credit for your business, there are numerous details you’ll want to review. Below are some of the key factors our experts considered when ranking the top lenders.

• Qualification Process: Can your business satisfy a lender’s credit score requirements, stated annual revenue, time in business, etc.? If not, that business line of credit is probably a poor fit for you.
• Interest Rates and Fees: Consider both interest rates and fees to get a clear picture of the cost of borrowing. Note that some LOCs might feature usage fees, origination fees, or maintenance fees that could offset the perceived savings of a lower rate.
• Other Loan Features: Details like the maximum credit line available, repayment term (i.e., weekly vs. monthly), and more matter when you’re shopping for a business LOC.
• Application Process: Pay attention to each lender’s process and funding speed. Online lenders often offer faster funding; whereas SBA lenders and traditional financial institutions may take weeks or even months for funding.
• Customer Support: The level of customer support a lender offers is another important detail to consider. Can you talk to a live representative? Are the business hours convenient? Answers to such questions matter when choosing the best business LOC for your company.
• Online User Reviews: No lender has a perfect track record in terms of customer satisfaction, yet independent review sites like Trustpilot can help you spot red flags and discover whether the lender has a better or worse reputation than average.
• Perks and Bonuses: Some business LOCs come with special offerings that could benefit you. Payment flexibility, advanced or user-friendly technology, and transparent advertising are a few examples of perks that you might discover.

What is a Business Line of Credit?

A business line of credit is a flexible form of financing that lets your company borrow multiple times against the same credit line. As you repay all or a portion of the money you borrow (plus interest and fees), you should have access to make future draws from the same lender without submitting a new application for financing.

How Does a Business Line of Credit Work

A business line of credit enables business owners to withdraw funds whenever needed. The borrower can keep withdrawing funds, as long as that borrower keeps current on loan repayments and doesn’t go over the credit limit.

Business credit line use has remained stable over the past year at 32%, even as small business loans decreased after the expiration of the Paycheck Protection Program. However, rates for both credit lines and term loans have continued to increase. 

Source: Federal Reserve Bank of Kansas City

To get a business line of credit, you’ll need to prove your business is legitimate. Expect the lender to ask how long the business has been in existence – six months or more is a good rule of thumb for loan approval. You’ll also need to show your minimum annual revenue flow, which proves you have the ability to repay the line of credit.

A good rule of thumb here is annual revenues equal or higher than your line of credit loan request (i.e., if you’re asking for a LOC of $25,000, you’ll need to show that, at minimum, your business revenues exceed $25,000 annually).

Who Can Use A Business Line of Credit?

Business lines of credit are suitable for established businesses with large recurring expenses. Businesses generally use a business line of credit for everyday operations such as payroll, supplies, general cash flow, seasonal inventory, etc. Some firms also use equipment lines of credit to finance their operation.       
 

According to data from the U.S. Bureau of Labor Statistics, about 20% of new businesses fail during the first two years. Historically, cash flow problems are among the top reason for business closures, regardless of the economic environment

Even if cash flow is sufficient, every business has rough periods. Successful maintenance of any company requires regular cash flow. Many companies apply for a line of credit and only use it when they need it.

To be eligible, you will need to be in business at least six months, with annual revenue of $25,000 or more. Additionally, applicants may need a credit score of 600 or above. Lines of credit usually need to be repaid within 3-12 months and are a form of short-term financing.

APR rates can range from 9%-99% depending on credit history and annual business turnover, among other variables. While the rates can be high, this is offset because businesses only need to use what they require and only pay interest on what they borrow.

How to Get a Business Line of Credit

Below are five general steps you can take to open a business line of credit.

• See where you stand. When you apply for a business line of credit, the lender may review details like your credit score (personal and business), time in business, and annual income. It’s critical to know where you stand in each category.
• Determine if you’re eligible. Make a list of lenders offering business lines of credit with eligibility criteria you can likely satisfy. If you know you have fair credit and a lender requires good credit, you shouldn’t include the lender on your list of possible funding sources.
• Gather your documents. Many lenders will require you to submit documentation along with your financing application. Having your business tax returns, business bank statements, and other financial reports ready could speed up the funding process.
• Shop around. Comparing interest rates, fees, and benefits from multiple lenders can help you find a business line of credit that’s best for your situation.
• Apply. Once you settle on your preferred business line of credit, it’s time to apply. Be sure to fill out the complete application and send in any documentation the lender requests promptly.

Business Lines of Credit vs. Business Credit Cards vs. Loans: What's the Best Option 

About 33% of small businesses applied for some kind of financing last year, according to the 2021 Small Business Credit Survey (SBCS) from the Federal Reserve. This include credit cards, lines of credit, and/or term loans.

Business Line of Credit vs. Business Credit Cards

Business credit cards and business credit lines own the same financial lineage – they both offer business owners access to much-needed working capital. Typically, business lines of credit offer higher credit limits than business credit cards, so if you’re in need of a large amount of capital, a line of credit may be your best option.

• A small business line of credit: A line of credit is a revolving loan. Once the line of credit is approved, the business owner can access the funds at any time. The borrower repays the funds used from the line of credit either daily, weekly, or monthly, with interest.
• A business credit card: A business credit card also offers business owners access to capital up to a certain credit limit. The main perk of a business credit card is earning card rewards, such as cashback, frequent flier miles, and discounts on common business services. Keep in mind, though, that credit limits are typically lower than with business lines of credit.

Business Line of Credit vs. Small Business Loan

Business lines of credit and small business loans both provide capital to corporate borrowers. But there are a few key differences between these products. Business lines of credit tend to be more flexible but demand higher interest rates. Business loans may offer higher loan amounts but stricter criteria.

• A business line of credit: This product is a good choice if you need funds to cover business expenses and expect to be able to pay the loan back fast. Interest rates are typically higher than loans, but you’ll pay only for the amount of credit you use. 
• A small business loan: Term loans offer set terms and a fixed repayment schedule. You’ll receive the lump sum you’re approved for and begin paying back the debt right away. 

Secured vs. Unsecured Line of Credit

One element that a line of credit has in common with a term loan is the possibility to be secured or unsecured. Here are some of the key differences between a secured and unsecured business line of credit.

• Unsecured business line of credit: If a lender is comfortable with the risk profile of the borrower, they may approve an unsecured business line of credit, meaning that they don’t demand collateral. This is usually the case with well-established companies that have a good revenue record and are requesting a smaller amount (generally less than $100,000).
• Secured business line of credit: when a lender feels there’s a higher level of risk, they may insist upon a secured line of credit. In this situation, they will demand some form of collateral – an asset belonging to the company that the lender can claim if the borrower defaults on the loan.

Online lenders typically offer unsecured lines of credit, which are popular with small businesses that need help with working capital. In a Fed survey, 79% of borrowers said that meeting operating expenses was their reason for applying for unsecured business financing.

Final Thoughts

A business line of credit can provide a financial cushion when your business experiences a cash flow crunch. If you anticipate slow seasons in your business, you can apply for a business line of credit in advance, long before your business needs to access the funds This preliminary action allows your business to stay afloat during hard times and gives you peace of mind when it comes to the financial security of your business.