If you want to take your business to the next level, you probably need an increase in working capital. A business line of credit can provide cash infusion when you need it.
“A line of credit offers you a flexible way to get the money you need to build your business,” says Ty Kiisel, manager of education for online lender onDeck, which has issued more than 6 billion in small business loans to more than 50,000 small businesses since 2007.
Lines of credit are a popular option because they’re flexible. You can borrow money from the credit line, use it to make a purchase and then repay the money and use the line again at a later time. You also only pay interest on the amount of money on the line.
Ty Kiisel, Ondeck
“Lines of credit are a popular option because they’re flexible,” says Kiisel. “You can borrow money from the credit line, use it to make a purchase and then repay the money and use the line again at a later time. You also only pay interest on the amount of money on the line.”
All lines of credit aren’t created equal, however, says Kiisel, who states: “The best business lines of credit are those lines that enable you to capture a return on investment (ROI) and spur growth, which requires a line that offers sufficient credit and low interest rates and fees.”
Considering that you often need to take advantage of growth opportunities quickly when they come up, it’s also necessary to get fast access to funds. While banks and credit unions offer lines of credit, the application and decision process can be lengthy. Online lenders, on the other hand, generally give you immediate approval and you can often access funds within 24 to 48 hours.
Here’s a guide to our top three picks for the best online business credit lines with reasonable interest rates, low fees, and generous credit limits.
Best business credit lines
OnDeck is a good option when you’re looking for fast funding. The application process is quick, and you’ll find out if you qualify for a credit line within minutes. Funding can be as fast as 24 hours. They offer a credit line up to $100,000.
- Minimum 600+ personal credit score of the company’s majority owner
- Minimum one year in business
- At least $100,000 or more in gross annual revenue
- Made weekly via automatic withdrawal for six months
Kabbage is another lender that provides quick answers and fast funding. You can apply online and find out if you qualify within minutes and get funding as soon as 24 hours. They offer credit lines up to $150,000.
- No minimum credit score required, although most borrowers have at least a score of 500
- Minimum one year in business
- At least $50,000 in annual revenue or an average of $4,200 per month for the last three months
- Six or 12-month repayment plans. For six months, each month you pay back 1/6 of the loan balance and a fee. For a 12-month loan, you pay back 1/12 of the loan balance and a fee.
One of the largest loan marketplaces in the world, LendingClub has funded more than $20 billion. They offer low APRs and a high credit limit that competes with traditional lenders. You can get a credit line up to $300,000.
- Fair or better personal credit score
- No recent bankruptcies or tax liens
- Minimum of two years in business
- At least $75,000 in annual sales
- Must own at least 20% of your business
- 25-month term requires a payment of 1/25th of the loan balance monthly and includes draw fee(s) and interest
When to get a business line of credit
While opening a business line of credit can be a boon for your business, it’s not always the best solution, believes Kiisel, who grew up working in a family business.
According to a survey of almost 600 small business borrowers commissioned by the Electronic Transactions Association (ETA), a majority who took out business loans anticipated a five-time ROI on the money borrowed.
“Even though I work for a lender, I don’t believe that borrowing is always the best solution,” he says. “Take a strategic approach and examine your cash flow ratio. This is your income divided by expenses. The ideal ratio is two to one, which means you should have twice as many assets as liabilities. If taking out a business line of credit means having more liabilities than assets, I wouldn’t recommend it.”
Kiisel also believes that a business line of credit should always enable you to increase growth and profits.
He states, “Using a line of credit should enable you to have a good return on investment (ROI), and successful business owners know this. According to a survey of almost 600 small business borrowers commissioned by the Electronic Transactions Association (ETA), a majority who took out business loans anticipated a five-time ROI on the money borrowed.”
Kiisel gives an example of a good use of a business credit line: “If you borrow $5,000 and make $25,000 by doing so, that is a good return on your investment. Paying the interest and fees associated with a credit line makes sense.”
Increase your odds of getting a business line of credit
As a business owner, it’s important to realize that lines of credit are reserved for the “best” customers, notes Kiisel. “The flexibility of a credit line implies a bigger risk for the lender, so it’s important that you build a strong business credit profile. There’s no easy way to do this. It takes forming a strong payment track record and avoiding anything that would cause a negative on your credit profile, such as late payments.”
The most important piece of advice Kiisel offers is to separate your business and personal credit. “Don’t use personal credit for business credit transactions,” he says. “Though it’s important to also maintain a good personal credit history, it’s not advisable to mix personal and business credit.”
Also keep an eye on your business credit profile, just as you do your personal credit.
“Check your business credit on a regular basis. This can be done through Nav, Dunn and Bradstreet, Experian and Equifax,” says Kiisel. “Get familiar with what your credit profile says about you. Make sure that the information is correct, such as credit usage and any public records. If you find errors, contact one of these agencies to have the information corrected.”
Once you’ve determined that a business line of credit is right for your business, check out SuperMoney’s Best Business Loan Companies Reviews & Comparison page to find the ideal lender for you.