If you need fast financing to manage cash flow, buy inventory, or pay for an unexpected expense, a business line of credit may be just what you need. A business line of credit is one of the most flexible forms of business financing, and they’re also fairly easy to apply for. Keep reading to learn how to get a business line of credit.

1. Determine how much funding you need

The first step in how to get a business line of credit is determining how much credit your business needs. Loan amounts can range from as little as $2,000 to as high as $250,000. Unlike a traditional business loan, you only pay interest on the amount you use, so you might want to consider taking out a line of credit for more than you think you need. Just don’t get ahead of yourself and spend more than you can afford to repay!

If you end up needing more credit down the road, you’ll have to apply for a line of credit increase. If your business is doing well and you’re keeping up with your payments, you’ll likely be approved for the increase. But if things aren’t going so well, your lender may ask for collateral.

2. Determine your eligibility for funding

After you figure out how much money you’d like to request, the next step in how to get a business line of credit is seeing if you’re eligible for funding. These are the most important factors to take into account in determining your eligibility:

  • Credit history: The first thing a lender will look at is your business credit score. The higher your score, the better chance you have at securing a low interest rate or a higher line of credit. The minimum required business credit score is often 80, but some lenders will give lines of credit to those with scores as low as 75.
  • Business revenue: Your lender will also take a look at your monthly or annual revenue before granting a line of credit. Again, this amount varies from lender to lender, but many lenders want to see revenue of about $10,000 per month.
  • Time in business: The longer a business has been around, the more likely they are to get approved for a line of credit. Longer-running businesses also get lower interest rates. Your business should be in operation for at least a year in order to get a line of credit.
  • Collateral: We touched on collateral earlier in terms of credit line increases, but your lender may also ask for collateral during your initial business line of credit application. If you have poor credit or if your business is on the newer side, providing some type of collateral may be the difference between receiving your loan and having your application denied.

3. Learn more about available lenders

While banks and credit unions have long been the go-to source when applying for a business line of credit, online lenders are gaining more popularity every day. Here are a few things to consider with both types of lenders:

  • Banks and credit unions: Owners with high credit scores, long business histories, and high annual revenue should start by applying for a line of credit through a bank or credit union. These institutions often offer better rates and terms. The catch is that banks and credit unions have high standards, so it can be tough to get approved.
  • Online lenders: Startups can have a hard time getting a line of credit through a bank, especially if the owner has a low credit score. Luckily, online lenders and web banking platforms have lower qualification thresholds. The downside is that online lenders often have higher interest rates.

4. Consider costs and fees

Like with all your banking, you need to look out for all associated costs and fees when opening a business line of credit. These are a few of the most common fees you’ll see when researching business lines of credit:

  • Interest rate: The first thing to look for is the interest rate, which typically ranges from 10 to as high as 90%. Your interest rate will either be variable or fixed. A fixed rate stays the same throughout the duration of the loan, while a variable rate fluctuates depending on the overall market interest rates.
  • Draw fee: As the name suggests, a draw fee is often incurred any time you draw money from the line of credit. This fee is usually 1 or 2% of the amount withdrawn.
  • Payment processing fee: If you choose to have your money sent via wire transfer, you’ll likely need to pay a processing fee. This amount ranges from $5 to $35, but wire transfers help you get your money faster.
  • Late fee: Missing your payment due date is a big mistake. This fee depends on your lender, but will likely grow higher the longer it takes you to pay.
  • Early termination fee: Your business line of credit will likely have a fixed end date. If you decide to end your loan before that date, you may have to pay a small percentage of the loan amount as an early termination fee.

5. Gather your documentation

Whether you decide to work with a bank or an online lender, they’ll need to see quite a few documents before approving your business line of credit. The required documents vary from one lender to another, but you’ll often need to submit the following information:

  • Personal and business tax returns
  • Personal and business bank statements
  • Business licenses
  • Articles of incorporation
  • Profit and loss statements
  • Business plan
  • Building lease

These documents are used to verify your company’s credibility. After all, a lender isn’t going to extend a line of credit to just anyone. The lender will also ask for more common information, like your name, Social Security Number (SSN), and your business’s name.

6. Apply for your line of credit

With all of the other steps completed, you’re ready to apply for your line of credit. Depending on the type of lender you go through, getting approved can take anywhere from a few minutes to a few days. Approval times for online lenders are often much faster than with a traditional bank or credit union. After you’re approved, your lender will send you a loan agreement document to sign before issuing your line of credit.

North One makes managing your business finances easy

Now that we’ve covered how to get a business line of credit and the requirements for a business line of credit, consider opening an account with our team at North One. Our easy-to-use financial software is designed to streamline your business’s finances. Spend less time at the bank and more time running your company!