How Do I Get a Line of Credit for My Business?

To get a line of credit for your business you will need to apply for one with a bank or other lender.

Depending on what bank or lender you prefer, the application process may be slightly different, and so you should first research what bank or lender would be best for you based on what they offer.

You should then look at the application process for their particular line of credit and apply as required. 

It is wise to ensure that your business is represented as well as possible.

By this, we mean that you should take steps from the get-go to ensure that you have good credit, that your business is put on the map, that it is well-established, and that you pay all bills on time, always. 

This will make your business more attractive to banks and lenders when you do come to apply for a line of credit further down the line.

Bear in mind that a line of credit should not be used as a top-up of existing finances. It should be used as an emergency fund, for example, it can be utilized during ‘quiet months’ where your usual income is a little less than usual.

As such, you should only think about getting a line of credit when you really need one. After all, it is a debt and if you do not need it, it’s best to stay away from it.

If you do decide that getting a line of credit for your business is the best option for you, your first port of call may be to contact the bank that you use for your business account (or personal account).

They will already know your financial situation and so getting a line of credit may be easier (of course, this is not always the case but it is still a good first step).

How much is a business line of credit?

How much a business line of credit is will depend on the amount you want to borrow, the amount you’re able to borrow, and any other costs incurred such as interest rates. All must be considered to understand how much a line of credit is.

The amount of money you can receive through a business line of credit may vary. Many factors will be taken into account when determining how much you may be eligible to receive.

It may also depend on the bank that you wish to borrow from since some banks only lend large amounts and others only lend small amounts.

Typically, businesses may apply for a minimum of $5000 on a line of credit. This is rare, however, since it is usually only smaller banks and online lenders that allow you to borrow this small amount.

As a maximum amount, businesses may be able to borrow up to $500,000. Again, this is typically only available from major lenders and banks.

You may find that businesses generally lend up to $100,000 to around $200,000 as a maximum.

Again, just to reiterate, this is wholly dependent on the needs of the business, as well as the lender themselves. There will be different criteria that need to be met before any amount can be agreed upon.

Typically for higher sums of money, there are stricter checks on the business’s finances, as well as the person applying for the line of credit on behalf of the business.

This is especially true if the business is looking to obtain an unsecured line of credit as there is no collateral needed. Instead, in-depth credit checks are undertaken and the criteria for lending are even stricter.

With this in mind, it is a good idea to check your credit score before you consider applying for a line of credit through a bank or other lender.

Of course, each lender will have a different ideal credit score, and indeed, this may differ based on how much you wish to borrow, but it is a good idea to be aware of this first so you can look at what loans may suit you best based on the credit score you have.

Interest Rates

Another aspect relating to how much a business line of credit is is that of the cost of borrowing it. By this, we are, of course, referring to interest payments.

A line of credit stays open and available for a set amount of time, and, importantly, a short amount of time. It is not designed to be a long-term solution, but rather a short term backup when some extra cash flow is needed in a business.

An example of this is a business that experiences ‘quiet months’ and needs a small money pot to keep them ticking over until business picks up again.

The whole amount is not just given as a lump sum. Rather, it is given to the business in an account that they can dip in and out of when needed.

As such, there is not going to be a massive interest charge on the whole amount. Instead, the only interest you will pay will be on the amount you take out of the overall sum.

As an example, if a business lent $200,000 from a lender, that sum would sit in an account for them to take cash out of it when they need it.

They may only take out half of that amount ($100,000). This means that they will only pay interest on the $100,000. 

At the end of the line of a credit term, any leftover money will go back to the lender, and a repayment term will be set up to repay what was used as well as any interest payments incurred on that amount.

Interest rates will differ based on the amount you borrow, how long you borrow it for, and the lender itself.

You may also find that interest rates will be higher if you have an unattractive credit score or are a new business. It is, therefore, difficult to give a definitive figure on interest rates as they can vary so much.

Suffice to say that you should also consider these rates as part of how much the line of credit will cost in total and ensure you budget well for them.

How long does it take to get business line of credit?

The length of time it takes to get a business line of credit may depend on a number of different factors.

First of all, you will need to consider how long it might take you to get all of the information needed for your application together.

Depending on what is required, this may take anything from a couple of hours to a few days, especially if there are documents needed that you do not currently have to hand.

That being said, generally speaking, this will not take too long, especially if you keep your finances and documents in order and accessible (which all businesses should do). If you have an accountant they may be able to help you with this.

When you have gotten everything together for your application (that is, if an application is needed) you can then submit it and await results.

This typically takes the longest and can take even longer if the bank or lender contacts you to ask for additional information and supporting documents.

To speed this up you should ensure you carefully check what is required from you and submit all of the correct information.

Reply to any correspondence regarding the application quickly and ensure that you submit any additional required documents as soon as you are asked for them.

It can typically take between 7 to 10 days to get a decision from your chosen bank or lender, after which you should be able to access your line of credit immediately.

However, it is not uncommon for this to take several months. That being said, we have heard of businesses finding out in just one or two working days, so it really varies!

Of course, the actual time it takes will depend wholly on the bank or lender you are using and so you should use these figures as a guide rather than a definitive time frame.

The bank or lender you decide to use should be able to tell you an estimated time frame upon the submission of your application.