Business line of credit

A business line of credit (LOC) is a revolving credit facility that allows a business to borrow up to a set limit, repay, and borrow again — similar to a credit card but typically with lower interest rates and higher limits. Unlike a term loan where you receive a lump sum, a LOC provides flexible access to capital as needed.

35 steps across 8 sections

1. Gather Documentation

  • Business and personal tax returns (2 years)
  • Profit and loss statements
  • Bank statements (3-12 months)
  • Business plan (for newer businesses)
  • Collateral documentation (if applying for secured LOC)

2. Apply

  • Banks: 2-4 week approval process
  • Online lenders: 1-3 day approval process (sometimes same day)
  • SBA CAPLines: 30-60+ day process

3. Review Terms Carefully

  • Interest rate (fixed vs variable) and how it's calculated
  • Draw period length and renewal terms
  • Repayment terms (interest-only vs principal + interest)
  • All fees (origination, maintenance, draw, inactivity, early termination)
  • Personal guarantee requirements
  • Collateral requirements
  • Financial covenants (minimum revenue, DSCR requirements)

4. Secured Line of Credit

  • Backed by collateral: Real estate, equipment, inventory, or accounts receivable
  • Interest rates: 3.00%-8.50%
  • Higher credit limits: Collateral supports larger borrowing capacity
  • Easier qualification: Collateral reduces lender risk
  • Risk: Lender can seize collateral if you default

5. Unsecured Line of Credit

  • No collateral required
  • Interest rates: 4.66%-39.60% (significantly higher)
  • Lower credit limits: Typically capped at $250,000 for most lenders
  • Harder to qualify: Stronger credit and financials required
  • Personal guarantee: Usually still required even though no physical collateral is pledged
  • Risk: Personal liability through guarantee; potential impact on personal credit

6. Banks

  • Wells Fargo BusinessLine: Up to $150,000 unsecured; requires 2+ years in business
  • Bank of America: Unsecured lines available; strong credit required
  • Chase Ink Business Line: Competitive rates for existing Chase business customers
  • Local/community banks: Often more flexible with established relationships

7. Online Lenders

  • Bluevine: Up to $250,000; 6+ months in business; weekly/monthly repayment
  • Fundbox: Up to $150,000; fast approval; draws from 12-24 week terms
  • OnDeck: Up to $100,000; 1+ year in business; daily/weekly repayment
  • Kabbage (AmEx): Up to $250,000; automated application; monthly fees on drawn balance

8. SBA

  • CAPLines: Up to $5 million; 4 sub-programs (seasonal, contract, builders, working capital)

Common Mistakes

  • Not reading the fine print on fees
  • Over-borrowing
  • Using LOC for long-term needs
  • Ignoring personal guarantee implications
  • Not maintaining the relationship

Sources

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