Business Line of Credit Requirements

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read

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It’s good to understand the business line of credit requirements before you get one to fund the cash you need as a small business owner. That way, you will know what to expect when you apply and how to use business lines of credit to your advantage for expenses, inventory or other business needs.

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What Is a Business Line of Credit and How Does It Work?

A business line of credit basically works like a credit card. Having one provides access to money when you need it for all types of business expenses. Most business owners use their line of credit for short-term funding and then pay it back, so the funds are there when needed again. Unlike a small business loan, where you pay interest on the entire loan, you only pay for the amount of money you use with a business line of credit. In addition, you can draw on the credit line as often as you need to up to the limit agreed upon when you apply, as long as you continue to make payments on time.

You can get a business line of credit from traditional banks, credit unions and online lenders. There are fees when you apply and use your line of credit, and you will pay interest on the amount you draw from your credit line. Qualifications, credit limits and interest rates will vary depending on the lender. Some banks and other financial institutions have stricter requirements, such as credit score and how long you have been in business. On the other hand, online lenders may offer faster approvals and fewer fees. Online lenders may make your business line of credit available to you just a few days after you apply.

If you’re wondering whether to use a business credit card, there are reasons a business line of credit could be better for you. It is possible to qualify for a higher credit limit with a business line of credit, and when you draw on it, you’ll have cash in your bank account. You can get a cash advance with a business credit card, but the fees could be higher, and you’ll pay higher interest rates too.

Business lines of credit usually have two types—a secured line of credit and an unsecured one. A secured line of credit will require that you offer collateral the lender can claim if you don’t pay what you borrow. On the other hand, an unsecured line of credit won’t need you to provide collateral, but the lender could require a personal guarantee. That means if your business can’t make payments, you would personally be responsible.

Cons Of a Business Line of Credit

While it’s a convenient way to get cash to cover expenses, there are some cons of a business line of credit.

  • For starters, paying your business lines of credit back starts as soon as you begin using the money. There is no grace period or delay when paying back the credit line. However, you will not need to pay it back all at once but rather on a weekly or monthly payment schedule you agree to with the lender.
  • Another con of a business line of credit is that you can expect to pay higher interest rates in exchange for the convenience of being able to access the business line of credit when you need it.

Pros of a Business Line of Credit

Take a look at the pros of a business line of credit too.

  • Instant funding is one of the most appealing reasons to have a business line of credit. Once your lender approves you, you can get the money as soon as the next business day. As long as you pay off the amount you draw, more money is available the next time you need it.
  • Business credit building is also an important consideration. Using your business line of credit and paying it back can help you establish or build your credit history over time, making it easier to qualify for more business loans as you expand your business.
  • With a business line of credit, you only pay for what you borrow. That can save you on interest payments that you would be obligated to make if you had used a small business loan instead.
  • Revolving credit is another way a line of credit is similar to a credit card. Interest begins to accrue as soon as you use money from the line of credit. Once you pay down the balance, the full amount of your credit line is available to borrow again.
  • Effective use of a business line of credit can help you gain access to better loans in the future. You’re building a relationship with a lender and demonstrating that your business is worth the risk, which can translate into lower interest rates and longer terms for loans as your business grows.

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Business Line of Credit Requirements

When deciding which lender to use, consider the bank, credit union or online lender business line of credit requirements. Each could require different information. Lenders have different criteria by which they rate your creditworthiness based on how long you have been in business and other factors. It might help you be more efficient if you gather the business and financial documents before applying.

  • Personal and Business Credit Scores. If your business is relatively new, you may not have a business credit score, which will be acceptable to most lenders. However, lenders will review your personal credit score and may expect your credit score to be above 660 or 680 for you to qualify for lower interest rates and other loan terms. If your credit score is low, take steps to improve it by reviewing your credit report, paying bills on time and monitoring how much credit you have.
  • Business Financials. Prospective lenders will review the annual or monthly revenue of your business. Be sure you can provide as many details as requested in your financial statements, including balance sheet, annual revenue and cash flow. As with other requirements, different lenders will have varied expectations for revenue. Online lenders may expect revenues above $25,000, while banks and other financial institutions may require revenues of $100,000 or even more.
  • How Long You Have Been in Business. Lenders will consider how long you have been in business before extending a line of credit. For example, you may be required to have been in business for at least six months or even two years before some lenders will approve your application. Online lenders may put less emphasis on this requirement than traditional banks and credit unions.
  • Business Debts. Lenders will need to know how much debt your business already has before offering you more debt with a business line of credit.
  • Collateral to Secure the Loan. Not all lenders require you to supply collateral to secure the loan. Collateral is an asset you own that will become the possession of the bank or online lender if you are unable to make payments. Acceptable collateral may include business assets, such as real estate, vehicles, inventory, customer invoices, or business equipment.
  • Industry. Lenders may consider how saturated the market is for your industry before extending business lines of credit to you. Be prepared to show a competitive analysis of how your business compares in the market you’re in.

Where Can You Get Business Credit?

No matter if you’re a new small business owner or are planning to expand, get the solutions you need from Mulligan Funding. They offer a wide range of funding options, including:

Visit their website and find customer reviews that show how easy it is to work with Mulligan Funding. They are an experienced lending partner that offers:

  • Flexible terms with loans ranging from $5,000 to $2 million (*)
  • Streamlined application process with new online checkout
  • Fast approvals and access to funding the next business day (1)

You can request a free quote today for your business financing needs from Mulligan Funding.

The majority of Mulligan Funding, LLC business loans are issued by FinWise Bank. Certain loans are made by Mulligan Loans, LLC who holds a California Finance Lenders License.

To view Mulligan Funding’s disclaimers and how they pertain to our services, please visit our disclaimers page.

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