Following the recent tariff announcements, many small-business owners are facing greater financial strain and uncertainty about the future. A business line of credit can be a useful tool during this time, allowing businesses to draw funds as needed and only pay interest on the money borrowed. This type of credit can help cover increased costs, manage cash flow interruptions, or serve as an emergency fund.
A business line of credit is a type of small-business loan that allows you to borrow up to a certain limit, similar to how a credit card works. You only pay interest on the amount you borrow and can repay it over time, typically on a weekly or monthly schedule. As you repay the borrowed amount, you can continue to draw on the line, provided payments are on time and the credit limit is not exceeded.
To qualify for a business line of credit, most lenders require a business to be operational for at least six months, a credit score between 600 and 700, and annual revenue ranging from $36,000 to $300,000. While some online lenders may accept lower credit scores, traditional lenders typically require a stronger score and at least two years in business. Businesses with lower revenue may still qualify for a line of credit, but qualifying for a bank loan or SBA loan usually requires annual revenue upwards of $100,000.
A business line of credit is a good option for working capital, short-term expenses, and emergency funding needs. The interest is paid only on the funds borrowed, not on the total credit limit. It may be easier to qualify for than traditional term loans and can help build business credit. However, it is not suitable for large purchases or investments and may include additional fees that increase overall costs. The repayment terms are often shorter, and the funding amounts may be lower compared to traditional term loans.
Some of the top business lines of credit include options like the SBA CAPLines, Backd, Bluevine, and Headway Capital, with varying loan amounts and requirements. Banks and credit unions typically offer the most competitive rates but have stricter eligibility requirements, such as strong revenue and good credit. Some banks also offer SBA CAPLines, which provide funding up to $5 million but involve a lengthy application process. Online lenders tend to have more flexible qualifications, making them a good choice for startups or businesses with bad credit. However, they may charge higher interest rates and provide lower credit limits.
A secured business line of credit requires collateral such as inventory or property, while an unsecured business line does not require physical collateral but may involve personal guarantees or liens on business assets. When comparing options, business owners should consider factors like the maximum funding amount, repayment schedule, interest rates, additional fees, and the lender’s reputation. Online lenders generally offer quicker funding, but banks tend to provide lower interest rates and higher credit limits. It’s important to thoroughly assess the terms and conditions before committing to any lender.
