Startup Business Lines of Credit: How it Works & Best Options

Many new businesses do not meet eligibility criteria set by traditional financial institutions, such as minimum hours of operation, annual revenue, and credit score requirements. This makes it more difficult for start-ups to qualify for financing products such as small business loans.

A Business Line of Credit can be a convenient alternative for small business owners with pressing short-term business needs. It may also suit more established businesses that need quick funding for unexpected opportunities.

This guide will give you more information about secured and unsecured business lines of credit and help you decide if one of these options is right for you. Read below for more information.

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What is the Business Line of Credit?

Business Line of Credit is a small business financing option that businesses can use to access working capital for business expenses such as inventory, new equipment, and labor costs. They are particularly well suited for companies that are seasonally impacted or have variable cash flow needs.

Small businesses and start-ups often use business lines of credit when they do not have access to traditional sources of funding. Lines of credit are an alternative to term loans and small business administration (SBA) loans and may have more stringent eligibility requirements.

Similar to a business credit card, credit limits give you access to a predetermined amount that you can use as needed. You only pay interest on what you borrow, and once you make a payment, the credit becomes available again. However, business credit cards typically have higher interest rates than business lines of credit and cannot be used to cover certain expenses such as lease payments or salaries.

Unlike business credit cards, business credit lines have no annual fees, but lenders may charge origination fees, monthly maintenance fees, or both. Business credit lines also offer much higher credit limits than business credit cards, especially for new businesses.

Pros and Cons of Taking a Business Line of Credit

Strong Points

  • Withdraw funds as needed and pay interest on what you use
  • Close the gap between cash flow and expenses, especially in bad economic times
  • Fast application process and funding time
  • Easier to qualify than traditional lending products
  • Helps build business trust
  • Loyalty to the same lender can get better terms on future borrowings


  • Often very expensive, high interest rates, short repayment terms
  • Established businesses may have lower credit limits
  • May encourage risky spending habits
  • Charges may apply

How do business lines of credit work?

A business line of credit is a form of revolving credit that provides access to a predetermined amount that a borrower can withdraw as needed. This differs from other loan products such as business term loans that offer a lump sum.

After approval, the borrower can access funds (up to the approved credit limit) via the lender’s online portal or mobile app and transfer the required amount to a business checking account.

Some lenders set prescribed withdrawal and repayment periods during which borrowers can access and pay their funds. As the business repays the loan, the lender can update the line of credit and increase or decrease the credit limit based on creditworthiness.

Types of business lines of credit

Business lines of credit may be secured or unsecured. Unlike secured loans, unsecured business lines of credit do not require the borrower to provide assets such as real estate or business equipment as collateral.

Borrowers do not require collateral to obtain an unsecured line of credit, but are usually required to provide a personal guarantee. With this guarantee, if the business defaults, the business owner is responsible for repaying the outstanding loan balance.

Some lenders report business LoC activity to business credit bureaus, but many do not. Report to business credit bureau Lender products can help you increase your business credit. In either case, poor creditworthiness behavior, such as late payments, can affect the business owner’s creditworthiness.

Lenders discussed later in this article offer unsecured business lines of credit to startups. However, secure lines of credit and other financial instruments may be cheaper depending on the eligibility of the qualified person.

What is the average interest rate on business lines of credit?

Costs associated with the business line of credit include interest and other loan fees. His APR for business credit lines ranges from 8% to over 80%, according to American Express. Of course, the interest rate depends on the lender, the loan amount and the borrower’s qualifications.

In addition to interest, lenders may also charge origination fees, draw fees, maintenance fees, and closing costs.

Generally, online lenders that offer unsecured business lines of credit reward repeat borrowers with lower interest rates on subsequent loans. However, the fee structure can be confusing, so check how the interest rate changes over the life of the loan before applying for it.

How to get a line of credit for a startup company

Eligibility requirements vary by lender. In general, companies should consider the following when considering a business line of credit:

  • Credit score of 600 or higher
  • Have operated for at least 6 months
  • business checking account
  • Monthly or annual revenue requirements (minimum annual revenue of $100,000 is common)

To obtain a startup line of credit, you must also submit the following documents:

  • A business checking account in good standing
  • Applicable Business License or Permit
  • Employer Identification Number (EIN)
  • Personal and identifying information of all business owners
  • Individual and business tax returns and financial statements
  • Collateral (for secured lines of credit)
  • Personal guarantee (for unsecured lines of credit)

Once you have all the necessary documents, applying for a business line of credit with an online lender is relatively easy and quick. Many companies offer same-day approvals, some within minutes, and funding available the next business day.

Some online lenders require little paperwork and instead connect to your business account to determine eligibility and interest rates based on your business’s financial statements.

As with any type of financing, a stable source of income and a high credit score can increase your odds of approval and yield better interest rates.

Best option for start-up lines of credit

minimum credit score credit limit shortest time in business commission length of term
blue vine 625 $5,000 – $250,000 6 months None every month Maintenance costs, $15 wire transfer fee 6 months or 12 months
cash box 600 $1,000 – $150,000 6 months No commission 3 months or 6 months
cabbage funding 640 $2,000 to $250,000 12 months No commission 6, 12, or 18 months
on deck 625 $6,000 to $100,000 12 months One-time loan from 0.00% to 4.00% commission, $20 monthly Maintenance costs 12 months

For more options, read our guide to the best unsecured business loans.

How to choose the right options for small business credit facilities

When opening a business line of credit, consider your credit score, earnings, and time in business to find options that may qualify. Then explore and compare options from different lenders.

Some lenders are more transparent about their fees and rates than others. Read the fine print and understand the terms of a line of credit before applying for a line of credit, especially before you begin using it.

If you’ve been in business for more than a year, especially more than two years, you may be able to get financing at a more favorable rate. An unsecured business line of credit may not be the best choice for established businesses with high credit quality or for businesses that can provide collateral. In such cases, traditional loan options are the best option.

Frequently Asked Questions About Startup Lines of Credit

How can I improve my credit score on my line of credit?

Improving your credit score takes time. No quick fix. Experts recommend paying bills on time, keeping credit utilization below 30% of his credit, and keeping his old credit account open even after paying. .

Multiple credit inquiries over an extended period of time can negatively impact your credit score, so new credit applications should be limited as much as possible. Nonetheless, opening another credit card, especially a secured credit card, can help reduce credit utilization on your existing card. Use your best judgment and make timely payments to build good credit.

Other steps to improve your credit score include contesting errors on your credit report and seeking credit counseling if you need help managing your debt. Nonprofit organizations such as the National Foundation for Credit Counseling (NFCC) can offer credit counseling for free or for a small fee.

Can I get a line of credit for my startup business early?

Business credit lines are often available to new startups, but most lenders require borrowers to be in business for at least six months and meet minimum monthly or annual revenue standards. Businesses looking for quick funding may consider alternatives such as opening a business credit card.

Are there alternatives to credit lines for startups?

Instead of opening a line of credit for your startup, you can look to business credit cards, personal loans, crowdfunding, angel investors, friends and family for money.

Other options for new companies without a good credit history or sufficient annual income are personal loans or business credit cards. These generally do not require a minimum amount of time in business or a high minimum annual salary. Either of these products may offer a more favorable rate than a line of business line of credit, but they are not without risk . If in doubt, consult your financial advisor.

Need to open a line of credit for your startup?

The Business Line of Credit is a great product for startups that need to raise capital quickly. However, they often come with high costs and fast and demanding repayment terms.

Business lines of credit are ideal for businesses that need quick access to cash for expansion opportunities, such as closing a revenue gap. He is also an option for businesses that can pay off credit lines quickly.

Otherwise, traditional loans are a better route, offering lower interest rates and longer repayment terms if businesses can qualify.

A Guide to the Best Startup Business Credit Lines Overview

The Business Line of Credit provides a fast way for startups to access funding and has less stringent eligibility requirements than traditional loan products. Business lines of credit can also be an attractive option for established companies looking to seize new opportunities or fill unexpected cash flow gaps.

A business line of credit gives borrowers access to a pre-determined credit limit that can be drawn repeatedly upon repayment, allowing them to pay only for what they use. To be eligible for the line of credit, small business owners typically must have been in business for at least six months and have a credit score of 600 or higher.

Interest rates and repayment terms for business lines of credit vary widely from lender to lender and are based on the borrower’s eligibility. To get the best line of credit for your business, borrow only what you need and compare the interest rates and repayment terms of various lenders.

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