A business line of credit is a flexible financing option that allows business owners to withdraw money from a set amount instead of borrowing a lump sum. Much like a business credit card, a line of credit for small business owners is revolving, which means that once you pay off the funds you’ve withdrawn, the full amount becomes available again.
If you run your own business, it’s likely there will be a time where you’re going to need access to readily available cash. You could be looking to increase staff, purchase capital goods or grow and expand your company, but you aren’t sure of the exact amount you might need or for how long. If this is the case, then a business line of credit might be your best option.
Kabbage
Kabbage offers business lines of credit up to $250,000 with a monthly fee between 1.25% and 10.00%. Once you have your credit line, you can make withdrawals as small as $500 up to your credit limit. Kabbage lines of credit are unsecured, though you would need to provide a personal guarantee. In some cases, Kabbage may place a general lien on all of your business assets until you repay your debt.
OnDeck
OnDeck’s business line of credit is available from $6,000 to $100,000 with APRs starting at 10.99%. There is a $20 monthly maintenance fee that OnDeck may waive for six months if you withdraw $5,000 or more within the first week of opening your credit line. OnDeck’s business financing must be secured with a personal guarantee. OnDeck also places a general lien on all business assets.
FundBox
A business line of credit from FundBox is available up to $100,000. Interest rates may be as low as 4.66% for a 12-week repayment schedule, or 8.99% for a 24-week schedule. FundBox does not require a personal guarantee to secure lines of credit.
BlueVine
BlueVine offers business lines of credit up to $250,000 with interest rates starting at 4.80% for a 26-week repayment schedule. After receiving your credit line, your first withdrawal must be at least $5,000. From then on, you can make withdrawals as low as $500. BlueVine requires a personal guarantee and a general lien on business assets to secure financing.
A benefit of taking out a business line of credit is that you only pay for what you borrow — interest only applies to the amount you withdraw. Average APRs for business lines of credit can range from 8% to 80% or more.
For instance, let’s say you have a business line of credit totaling $50,000 and you withdraw $10,000. If you and the lender agreed on a 10% interest rate, then the interest would total $1,000 for the amount you withdrew. The amount you would be responsible for paying back would be $11,000, not $50,000. Once you have paid off the $11,000, you would have access to the full $50,000 again.
Both a business credit card and a business line of credit would give you access to a specific amount of money and allow you to draw from that amount up to a certain limit. But there are some key differences.
Business credit cards can be a useful tool for making capital upgrades, like purchasing new computers. And depending on the card you choose, you may benefit from rewards or gain some cash back. However, business credit cards frequently come with much higher interest rates than what you would receive with a line of credit, especially a line of credit from a bank.
Another difference lies in the fees and penalty charges that come with business credit cards. A business line of credit does not typically include fees, although you may be subject to a maintenance fee to use the credit line.
A line of credit allows a business to draw funds as-needed from a set amount of money. You could borrow as much as you need up to your credit limit, and only pay interest on what you actually borrow. Revolving lines of credit allow you to replenish your full credit amount once you pay back your debt.
You can apply for a business line of credit from traditional banks or online, non-bank business lenders. Online business lenders often have faster time to funding than banks, and more lenient eligibility requirements. However, banks typically have more favorable rates and terms than online lenders.
A business line of credit may be a good idea if you need to cover short-term costs, such as inventory. Opening a business line of credit would also give you access to immediate funding in case of an emergency or unexpected expense. However, a business line of credit wouldn’t be your best option for large purchases or long-term expenses; instead, a small business loan would be the better choice for those costs.