Best Business Line of Credit Loans

Traditional loans can help some businesses with their financing needs, but in many cases a line of credit may present a more optimal solution. With flexible terms and financing alternatives, lines of credit can help companies ensure they always have the cash on hand needed to grow. We take care of the heavy lifting by identifying the best available line of credit options for your business with expert lender reviews and insights. 

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Line of Credit Loans: What You Need to Know

When your company needs cash to cover impending expenses, you don’t have time to wade through the business loan application process. Having a line of credit in place provides access to a guaranteed amount of money any time you need it so that you never find yourself in a financial bind.

If you routinely require small amounts of money to keep your business going rather than large lump sums for occasional expensive purchases, a business line of credit could be right for you.

Lines of Credit vs. Business Loans

There are many types of business loans, but a line of credit is somewhat different. The choice between applying for a business loan or a line of credit loan depends on how much cash you need and what you intend to use it for. Business loans typically:

  • Provide one-time lump sum payments

  • Require repayment at a fixed interest rate

  • Have stable, predictable monthly payments

  • Include closing costs or early repayment penalties

Lines of credit, on the other hand, are similar to credit cards in the way the money is accessed. If you qualify for this type of loan, you can expect:

  • A set amount of money to borrow against

  • Flexibility to borrow as much as you need at any time

  • Monthly payments calculated based on how much was borrowed

  • Variable interest rates lower than the prime rate

  • A draw fee for borrowing against the credit line

  • Few or no closing costs

Both loan types require good cash flow, a solid credit score, and a strong financial standing.

When to Use a Line of Credit

Certain businesses, such as retail establishments, benefit more from lines of credit because of the predictable variations in cash flow. Seasonal changes in sales mean earnings fluctuate on a set schedule, and extra money is often needed to continue operations during slow times. When you’re able to anticipate these financial needs, you can rely on a line of credit to provide security.

A line of credit is also useful when:

  • You require a short-term boost in working capital

  • You’re unable to meet a payroll deadline Inventory needs to be increased or replenished

  • You need to cover expenses associated with hiring new employees

  • Marketing efforts need to be increased in anticipation of a special event

These types of expenses may not be specific or concrete enough to allow you to qualify for a regular business loan. However, since line of credit loans are given based on financial standing rather than a specific spending plan, you can still get the funds your business requires.

Applying for a Line of Credit: The Basics

Like a business loan, a line of credit may be secured or unsecured. Secured credit lines need collateral to back them up. Unsecured lines are guaranteed by your business and require more trust on the part of the lender. In both cases, you’re at risk of loss should you be unable to make payments. The lender will either take possession of your collateral or have the choice to sue you for what you owe.

To avoid these problems, work to build up a good credit score for your business and yourself. Have a dedicated business bank account, and stay on top of all your payments. Keep detailed records of cash flow, profit and loss, accounts payable and receivable, revenue streams, assets, and income. Most lenders will want to see this information when deciding whether or not to extend a line of credit to your business.

When applying, ask about any fees associated with the credit line. There may be fees for borrowing money or maintaining the account when you haven’t borrowed for a length of time. Make sure you understand the interest rate and the payment structure so that you can continue to practice good credit management.

Benefits of a Business Line of Credit

You may wonder why it’s worth the effort to go through the application process for a line of credit when a credit card offers similar borrowing options. However, credit cards can hit you with fees and penalties subject to change with little warning. Interest on a line of credit is often lower, and making regular payments also builds up your credit rating.

When compared to a business loan, the monthly payments on a credit line tend to be smaller, and you don’t have to worry about the money “running out” when you need it most. Instead, you have a set credit limit to draw from for the duration of the loan term. As long as you’re diligent about paying off what you borrow, you won’t be saddled with the specter of long-term debt.

Mistakes to Avoid With a Line of Credit

While this type of business loan may sound like the perfect fix for just about any cash flow problem, it’s easy to slip into bad habits or make poor judgment calls. To make a business credit line work for you, be careful not to fall victim to these financial mistakes:

  • Waiting until the last minute to apply

  • Not comparing rates, terms, and qualification requirements between lenders

  • Missing out on potential “upgrades” after improving your credit score

  • Neglecting to ask if the lender reserves the right to “call” the loan

  • Maxing out the credit line

It’s essential to be thorough when looking for a lender and careful when establishing a payment structure so that you don’t wind up in a tenuous financial situation.

With a business line of credit in place, you don’t have to worry about your company going under due to unexpected expenses or a particularly slow season. Be smart about how you use the money available to you, and your company will remain lucrative even during tough times.

Applying for a Business Loan or Line of Credit

If you’re looking to establish a line of credit or you’re wondering how to get a business loan, check out the chart above and take a look at some of the top lenders. Read through our detailed reviews, and make the right choice to ensure your business success.