Small Business Line of Credit: How to Get Approved and Use It to Grow

If you work in an industry where income changes dramatically month to month, then you know cash flow management can be a big challenge for your small business. Without a financial safety net, even profitable businesses can struggle to cover basic operations like payroll, inventory purchases, or emergency expenses.

A small business line of credit (LOC) provides that financial cushion. Think of it like a flexible funding source you can tap into whenever you need it. Whether that's making payroll during slow seasons, restocking inventory, replacing broken equipment, or seizing unexpected growth opportunities.

In this guide, we'll walk you through everything you need to know about business lines of credit: how they work, how to qualify, where to get approved, and how to use them strategically while avoiding common pitfalls.

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What is a small business line of credit?

A small business line of credit is a flexible financing option that lets you borrow up to a set amount and only pay interest on what you use. Unlike a traditional loan, you can withdraw and repay funds repeatedly without reapplying, making it ideal for managing cash flow, unexpected expenses, or growth opportunities.

Let's go over your two main line of credit options:

Secured vs unsecured lines of credit

Secured credit lines mean putting up collateral, like that new pizza oven, your delivery van, or your inventory. 

Yes, it feels scary putting your assets on the line, but here's the upside: way better interest rates and usually double or triple the credit limit. If you've been in business a while and have assets to leverage, this is typically your best bet.

Unsecured credit lines don't require collateral, which sounds great until you see the interest rates. But they absolutely have their place, especially when you're still building your business and need that financial cushion without risking your essential equipment. 

Online lenders have really opened up this market, making it easier to get approved even if you don't have perfect credit or years of business history.

How does a small business line of credit work?

A business line of credit works by giving you access to a set amount of money (your credit limit) that you can borrow from repeatedly. You only pay interest on the amount you've borrowed, and as you repay the money, it becomes available to use again. Interest rates typically range from 8-25% APR, with monthly payments required on any borrowed amount.

How to get a small business line of credit

Getting approved for a business line of credit comes down to showing lenders you can reliably pay back what you borrow. Here's what most lenders look at:

Time in business and revenue

Most online lenders want to see at least 6 months of operation, while traditional banks prefer 2+ years. Revenue requirements start at $50,000 annually for online lenders, but traditional banks typically look for $250,000 or more.

Credit score requirements

Online lenders ask for a 600+ credit score (with higher interest rates). Traditional banks typically ask for a 680+ credit score (with 30-50% lower rates).

Current debt and cash flow

Lenders want to see your monthly debt payments taking up less than 30% of your monthly revenue. They'll verify this through your recent bank statements and financial records.

Documentation needed

Keep these ready before you apply:

• Last 3 months of bank statements
• Recent tax returns
• Profit & loss statement
• Balance sheet

Pro tip: Clean, organized financial records speed up approval. Using basic accounting and payroll software, like Homebase Payroll, shows lenders you're serious about managing your money.

How to apply for a small business line of credit

Before you start submitting applications, take these steps to increase your chances of approval and get the best rates possible:

Step 1: Gather required documents.

Start by collecting the essentials. Your business license, EIN, and recent financial records. Most lenders want to see at least three months of bank statements, your latest tax returns, and current financial statements. 

If you're applying for a secured line of credit, you'll also need documentation for any assets you plan to use as collateral.

Step 2: Check your credit and financial health/

Before submitting any applications, review both your personal and business credit reports. Traditional banks typically look for personal credit scores above 680 for the best rates, while online lenders might be more flexible. 

Your current revenue and time in business will also play major roles in approval, so make sure you meet the lender's minimum requirements.

Step 3: Compare lenders and loan terms.

Interest rates can vary dramatically between lenders, typically ranging from 7-25% APR (we get into it later in the article). But don't just focus on rates. Consider the full picture. Look at credit limits, repayment flexibility, and any additional fees. 

Some lenders charge annual maintenance fees or penalties for early repayment, while others offer perks for existing customers.

As Austin Rulfs of Zanda Wealth advises, "The biggest mistake I see is business owners assuming any line of credit will work for them without considering how repayment terms and interest rates impact their bottom line. A 1% or 2% difference in rates may not sound like much, but over time, it adds up."

Step 4: Submit the application.

Once you've chosen a lender, fill out the application completely and accurately. You'll need to provide basic business information, owner details, and financial statements. 

Be prepared to explain how you plan to use the funds – lenders want to see that you have a clear purpose for the credit line.

Step 5: Review and accept the offer.

Take time to review any offers carefully. Pay special attention to the APR, credit limit, payment terms, and any conditions or restrictions. Remember, you don't have to accept the first offer you receive. If the terms aren't right for your business, it's okay to look elsewhere or negotiate.

Which is better: A small business loan or a line of credit?

The best choice depends on your specific needs. A business line of credit gives you flexible, ongoing access to funds you can use and repay repeatedly. 

This is perfect for managing cash flow, covering unexpected expenses, or taking advantage of short-term opportunities. You only pay interest on what you borrow, and you can draw funds as needed.

Traditional small business loans, on the other hand, provide a lump sum upfront that you repay over a fixed term. While they typically offer lower interest rates than lines of credit, you're committed to regular payments on the full amount whether you need all the money right away or not. 

They're better suited for major one-time expenses like buying equipment, expanding to a new location, or making a significant investment in your business.

Consider a business loan if:

• You know exactly how much you need.
• You're making a large, one-time purchase.
• You want predictable monthly payment.
• You qualify for better interest rates.

A line of credit might be better when:

• You need flexible access to funds.
• Your cash flow is unpredictable.
• You have ongoing or seasonal expenses.
• You want a financial safety net.

"A credit line is not free money. It should be something that supports your business without becoming a burden," advises Mark Sanchez of Tropic Residential. "If you need funds for short-term expenses like supplies or payroll, a lower-limit line with a better interest rate might be smarter than chasing the highest limit possible."

Where can you get a small business line of credit?

When it comes to getting a business line of credit, you have three main options. Each serves different needs and comes with its own trade-offs between rates, requirements, and speed of funding. Here's what you need to know about each:

Traditional Banks

Traditional banks offer the most competitive rates and highest credit limits, but they're also the most selective about who they approve. You'll typically need excellent credit, strong revenue, and at least two years in business. 

The application process is thorough and can take several weeks, but the terms are hard to beat if you qualify.

Chase Business Line of Credit

Chase offers a flexible revolving line of credit that works well for established businesses with strong financials. Their credit lines integrate seamlessly with their business banking services, and existing Chase customers often qualify for relationship discounts on rates.

• Best for: Established businesses with strong financials
• Max credit line: $500,000
• Term length: 5-year revolving
• Min. interest rate: 7.25% APR
• Min. time in business: 2 years

"Chase is great if you need a fast, flexible option with good banking perks," notes Russ Johnson, CEO of Linx Legal. "If you're already a Chase customer, you'll often find hidden benefits based on your business history."

Bank of America

Bank of America's business line of credit stands out for its competitive rates and rewards program. Their Preferred Rewards for Business program can qualify you for interest rate reductions and other perks, making it especially attractive for existing customers.

• Best for: Existing bank customers
• Max credit line: $100,000
• Term length: 1-year revolving
• Min. interest rate: 6.25% APR
• Min. time in business: 2 years

Wells Fargo

Wells Fargo's credit line offers unsecured options up to $100,000, with no collateral required. They're known for having more flexible credit requirements than other traditional banks, though you'll still need solid business financials to qualify.

• Best for: Businesses needing unsecured credit
• Max credit line: $100,000
• Term length: 1-3 year revolving
• Min. interest rate: 7% APR
• Min. time in business: 2 years

"Wells Fargo has the most liberal collateral requirements. Most banks have certain assets they will ask for, but Wells Fargo will accept various business assets to obtain more prominent lines of credit," shares Luca Dal Zotto of Rent-A-Mac.

If you already bank with one of these institutions, start there. Existing relationships often lead to better terms and higher approval odds.

Online lenders

Online lenders have revolutionized small business lending by prioritizing speed and accessibility over rock-bottom rates. They use technology to evaluate applications quickly, often providing same-day decisions and next-day funding. 

While their rates are higher, they're much more willing to work with newer businesses or those with less-than-perfect credit.

Fundbox

Fundbox specializes in working with newer businesses, using AI to evaluate applications based on business performance rather than just credit scores. They connect directly to your business bank account or accounting software for quick decisions.

• Best for: Newer businesses
• Max credit line: $150,000
• Term length: 12-24 weeks
• Min. interest rate: 10% APR
• Min. time in business: 6 months

BlueVine

BlueVine's line of credit program offers quick funding with a simple online application process. They're known for transparent pricing and no hidden fees, making them popular with businesses that need occasional quick access to capital.

• Best for: Fast funding
• Max credit line: $250,000
• Term length: 6-12 months
• Min. interest rate: 11% APR
• Min. time in business: 6 months

OnDeck

OnDeck provides lines of credit specifically designed for businesses that might not qualify with traditional banks. They consider factors beyond credit scores, including cash flow and business performance, in their approval process.

• Best for: Less-than-perfect credit
• Max credit line: $100,000
• Term length: 12 months
• Min. interest rate: 13.99% APR
• Min. time in business: 1 year

The higher rates of online lenders can be worth it if you need quick access to capital or don't qualify for traditional bank financing. Just be sure you can comfortably manage the payments, as they're typically withdrawn daily or weekly rather than monthly.

"Online lenders and American Express approve applications faster, sometimes within 24 hours, but their interest rates are often 15% or higher," explains Michael Benoit of California Contractor Bond & Insurance Services. "Some banks charge annual fees between $95 and $175, while others waive them if the credit line is used at least once a year."

Credit unions and community banks: More personalized lending options

Local credit unions and community banks often take a more holistic approach to lending. They're more likely to consider your business's specific circumstances and local market conditions rather than just the numbers. While their rates and terms vary widely, they typically offer more flexibility than big banks and more personal service than online lenders.

These institutions might not have the sophisticated online platforms of bigger banks or the speed of online lenders, but they often provide more personalized service and are more willing to work with small, local businesses. Many also offer educational resources and business advisory services alongside their financial products.

Make the most of your business line of credit

A business line of credit can be a powerful tool for growth when used strategically. Whether you choose a traditional bank for lower rates, an online lender for quick access to funds, or a community bank for personalized service, the key is matching the credit line to your specific business needs.

Remember that lenders look closely at how you manage your business finances when approving credit lines and setting rates. 

Using modern tools like Homebase to streamline your payroll, scheduling, and expense tracking doesn't just save time, it shows lenders you're serious about financial management.

Want to improve your chances of getting approved for a business line of credit? Start by getting your financial house in order. Try Homebase's free business tools to organize your payroll, track expenses, and manage cash flow more effectively.

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