Compare Small Business Loans
Small business lines of credit can help you meet your funding needs as they change over time. They can be especially helpful for businesses that know they'll need funding at various points in the future, but they're not sure when.
A business line of credit works by allowing you to borrow money during a draw period, which can go as long as five years. You pay little or nothing until you borrow money, during which time you'll enter into a repayment period. Thus, it's a flexible funding solution that's best suited to short-term business needs for items like supplies or payroll.
What is a business or commercial line of credit used for?
Small business lines of credit are commonly used to pay for short-term business needs like payroll costs, buying new inventory or dealing with temporary business hardships. They're not used for long-term business needs, like purchasing expensive equipment or buying real estate.
Here are some of the pros and cons of using a business line of credit:
Business line of credit pros:
- Flexible funding (borrow money quickly when you need it)
- Don't have to pay interest until you need to borrow money
- Quick application and funding, especially with online lenders
Business line of credit cons:
- May need to provide collateral
- Not appropriate for all business needs
- May have fees when you're not actively borrowing money
How we chose the best business line of credit
The lenders on our list had to meet the following criteria to be considered on our list for the best business line of credit:
- Maximum line of credit amounts of at least $100,000
- Available to all businesses, no matter the age
- Transparency around interest rates and repayment terms
|Wells Fargo||Unsecured business lines of credit||$5,000 - $100,000||Starts at Prime Rate + 1.75%||Up to 5 years, depending on loan type|
|Fundbox||New businesses and startups||$1,000 - $150,000||4.66% - 8.99% Interest rate||12 - 24 weeks|
|Credibly||Poor credit||Up to $250,000||Starting from 4.80%||26 weeks|
|OnDeck||Established businesses||$6,000 - $100,000||35.9% - 48.06% APR||12 months|
Best unsecured business line of credit: Wells Fargo
- Loan amount: $5,000 - $100,000
- Rates: Starts at Prime Rate + 1.75%
- Term: Up to 5 years, depending on loan type
Why we like it: Wells Fargo offers two different unsecured business lines of credit, depending on how long you've been in business. Its BusinessLine® line of credit is for businesses that have been established for at least two years, and offers a higher borrowing amount (up to $100,000). Newer businesses can apply for its Small Business Advantage line of credit, which only lets you borrow up to $50,000, but also comes with no annual fees for smaller (less than $10,000) lines of credit. Unlike the BusinessLine® account, the Small Business Advantage account notes a specific term of five years for its revolving line of credit.
Drawbacks: All business owners receive a Mastercard that they can use to access their funds (in addition to online transfers and checks), but if you're approved for the BusinessLine line of credit, there'll be a 3% fee to use this card. In addition, while you won't owe interest unless you draw from your line of credit, there is an annual fee of up to $175 that you'll have to pay for your line of credit.
Best business line of credit for startups: Fundbox
- Loan amount: $1,000 - $150,000
- Rates: 4.66% - 8.99% Interest rate
- Term: 12 - 24 weeks
Why we like it: Many lenders only work with established businesses, which can make getting funding hard if you're new. Fundbox is different and works with businesses who've been around for as little as six months.
Drawbacks: Fundbox has a very short repayment period — either 12 or 24 weeks, with weekly payments and an interest rate that changes depending on which option you select (the 24-week is more expensive than the 12-week). In addition, it's best to wait to apply until you know you'll need your first draw, as Fundbox states that "if you do not draw funds at least once, close to the date you are approved, we may need to close your account."
Best business line of credit for poor credit: Credibly
- Loan amount: Up to $250,000
- Rates: Starting from 4.80%
- Term: 26 weeks
Why we like it: Getting approved for a business line of credit can also be difficult if you don't have great credit. Credibly, however, has a minimum personal credit score requirement of just 560.
Drawbacks: You may be required to pay an origination fee for your business line of credit, which generally tends to be more common with borrowers who have poorer credit. It's also a common practice to charge borrowers with poor credit a higher interest rate. Credibly doesn't specify its maximum interest rate, but it's safe to say that you won't be getting the lowest rate if you have poor credit. In addition, Credibly doesn't specify on its website whether it offers other payback term options aside from 26 weeks.
Best business line of credit for established businesses: OnDeck
- Loan amount: $6,000 - $100,000
- Rates: 35.9% - 48.06% APR
- Term: 12 months
Why we like it: If you need funding fast, OnDeck is one of the quickest. After you request a draw, the company claims that it can instantly transfer the funds into your account (likely with a wire transfer) — "even on nights and weekends." In addition, once you draw from your business line of credit, you don't have to hit the pause button on future draws until you pay it all off, as you may have to with some other lenders. You can borrow again right away, as long as you have available credit left.
Drawbacks: While OnDeck is fast, you pay for that convenience with a much higher interest rate. Even if you're a stellar applicant, the lowest rate you could be charged is 35.9% APR — that’s far higher than what even most banks charge for business loans.
How to qualify for a line of credit
The process to qualify for a line of credit will depend on the requirements of individual lenders themselves, but there are some common standards. The following information is crucial to qualifying for a good line of credit with good terms:
- Good credit score (typically above 680)
- Strong cash reserves or strong cash flows
- Age of business and length of time your business has been profitable
- Well-constructed business plan
While the specific requirements differ from lender to lender, lenders will likely take the above factors into consideration. We recommend businesses first apply for a line of credit with a traditional lender like a bank. Banks will often give the most competitive rates, but have longer application processing times and stricter requirements. If you can't qualify with a bank, consider online lenders, who often have more lenient requirements and faster funding times but often charge much higher rates.
Want to know what the typical requirements are? Here's an aggregated profile of a borrower who would qualify for a line of credit:
|Time in business||6 months+|
|Loan amount||Up to $250,000|
|Line of credit term||Up to 5 years|
|Repayment period||12 months after each draw|
|Rates||Variable (prime rate + additional rate)|
|Recurring fees||$100 to $250 annually, or a percentage of the line of credit amount|
What to consider when choosing a business line of credit
The four major differentiators between lenders and products are the following:
- Minimum requirements. Most lenders will set strict requirements around personal credit scores, the annual revenue your business brings in, how long your business has been in business and what you'll be using the funds for. Most lenders require a minimum credit score of 600, $100,000 in annual revenue and for a business to have been in operation for at least a year. Looking at the different requirements across different lenders is the easiest and quickest way to determine what products you'll want to consider, as well as what not to.
- Credit line details. Most products don't require a regular draw, but some might just to keep your rates locked. And what are the usage fees? Of course, this will vary depending on individual applications and how "risky" lenders deem you to be. Are there any maintenance or origination fees? Most of the lines of credit geared toward startups don't have any maintenance or origination fees.
- Application process. Do you need funds quickly or can you afford to wait? Online lenders have really helped drive down the timeline in this space. After submitting an application, you should expect a decision within a business day or two, and your funds should be made available within three business days.
- Repayment terms. How often do you need to repay your borrowed amount? Depending on how your business handles cash, this can be a major factor in what lender or product you select. Many credit lines require weekly payments, but there are others with monthly or more flexible plans, if that's how your business operates.
I know what I want to apply for. Now what?
Once you've identified the lender and product you want to use, take a look at the lender’s website. Most lenders will offer online applications that can be easily filled out within minutes. If you still have questions, lender websites typically have the company’s contact info attached to the application, or a chatbox where you can quickly connect to a real person. They'll be ready to answer any and all questions on your product, and their job is to help make filling out the application easier. For some lenders, you might have to visit a branch location in order to apply for a business line of credit.
Either way, you should get a response in anywhere from minutes to potentially a few months, depending on the lender. The amount of time it takes to then get access to your funds will depend on the specific product itself. Be aware of any promotions that incentivize you to make draws early on in the term — for example, some lenders will waive certain fees if you draw a certain amount within a number of weeks after your line has been opened.
What should I do once my business line of credit becomes active?
Pay careful attention to what you use your line of credit for. As stated above, you should use your line of credit for expenses that will generate a quick return. In a perfect world, you'd pay off your balance immediately after you use your credit to avoid fees. Usually, the bulk of fees will come from usage or interest fees on the credit that you use, so you shouldn't feel pressured to use it.
You should also pay careful attention to the repayment plan: Lines of credit typically have repayment schedules that are more regular (typically weekly) than most businesses may be used to.
If you want to continue operating with your line of credit, good standing with your lender is crucial. Don't make late payments — otherwise your lender may not renew the line of credit with you or may increase the fees and reduce the credit limit. On the flipside, if you always make your payments on time and use your credit enough to show that you're a reliable customer, you may get your credit line increased and fees reduced.
Business credit card vs. business line of credit vs. loans: What's the best option for you?
Business credit cards are best suited for frequent everyday business expenses. Credit cards are structured with lower credit limits and high fees. However, they're also the most liquid form of credit a business can use, making them ideal for daily expenditures. For example, if you're looking for a financing option to buy office supplies on a regular basis or take out clients week to week, credit cards are the right option.
Business lines of credit are best used for larger ongoing expenses like marketing campaigns or longer term projects. Business lines of credit are typically much larger than the credit limits of credit cards, and borrowers typically only need to pay interest when the line of credit is used, compared to a term loan where borrowers pay interest and fees whether the financing is used or not.
Business loans of all kinds are typically best for larger and infrequent business expenses. Loans differ from credit cards and lines of credit, given that they're typically issued as a lump sum source of financing. As loans aren't revolving, there is a finite limit to how much you can finance, so we recommend you have a good sense of how much you're looking to spend before applying for a loan. If you apply for a loan, you're going to have to pay back your principal amount with interest and fees attached. If you want to buy a new office space or spend money on a large, one-time expense that you feel will generate enough revenue that exceeds the debt, a loan is the right option.