In a NutshellSmall and start-up businesses need capital to survive and thrive. One possible source of capital is a business line of credit. We reviewed 13 different lines of credit from five major banks and found six of the best for you to consider.
A business line of credit is a possible option for a small or start-up business to get the capital needed to manage cash flow, fund day-to-day operations and take advantage of new opportunities.
Our picks for the best business lines of credit come with limits ranging from $10,000 to $3 million. The challenge is to find one that meets your needs. Here are six of the best, whether you’re just starting out or are established and looking to grow, and a quick look at how business lines of credit work.
- Best for rate discount
- Best for longer repayment term
- Best for higher limit
- Best for fixed-rate option
- Best for rewards program
- Best for start-ups
- How does a business line of credit work?
- What are the requirements to get a business line of credit?
Best for rate discount
Bank of America offers secured and unsecured business credit lines. Both types may come with an interest rate discount of 0.25%, 0.50% or 0.75%, depending on your three-month average combined balances in Bank of America business deposit accounts and/or Merrill Edge® or Merrill Lynch® business investment accounts.
The unsecured lines range from $10,000 to $100,000. And the secured lines start at $25,000, though you may not be required to secure the line of credit if it’s $100,000 or less (more than $100,000 and you’re generally required to secure the line of credit with collateral). Depending on your needs — like your desired credit-line amount and interest rate preferences — one type may be more appealing to you. Both the secured and unsecured business lines of credit are subject to annual renewal.
In order to qualify, your business must have a two-year track record under existing ownership, plus annual sales of at least $100,000 for an unsecured line or $250,000 for a secured line.
Best for longer repayment term
PNC Bank offers a secured business equity line of credit that gives you seven years of revolving credit during which you’re only required to make payments on the interest you’re charged. After that, you’ll have 10 years to repay the funds that you borrowed. No annual renewal is required to keep your credit line open for the full seven-year period.
The line can be secured by a personal residence or a commercial property that’s owned and occupied by the business. The limit ranges between $10,000 and nearly $1 million.
Best for higher limit
One of PNC Bank’s other secured credit lines has a limit of $100,001 to $3 million. That’s one of the highest maximums of the credit lines we reviewed, although Bank of America’s secured credit line has no specified maximum.
The line can be secured by non–real estate business assets, such as equipment, as long as the property or items meet a certain value. There will be an annual review to ensure your business still meets the requirements to renew the line of credit for another year.
During the revolving period, you can make automatic payments on interest charges and you can make payments toward the principal at any time.
Best for fixed-rate option
You may see credit lines with a variable interest rate, which means your interest rate can fluctuate based on an index. US Bank’s Cash Flow Manager Line of Credit comes with an option to lock in a fixed rate. The option is available if you have a minimum credit line of $2,000 with a loan term of 1–5 years. Plus each fixed-rate option has a $50 fee.
A few things to note: The bank may limit the number of fixed-rate options you can have at one time. And if your credit line has a Small Business Administration guarantee, you won’t be able to use the option to lock in a fixed rate.
And the credit limit tops out at $250,000.
Best for rewards program
Wells Fargo offers two unsecured lines of credit, Wells Fargo BusinessLine® and Wells Fargo Small Business Advantage®. Both of these get you access to the Wells Fargo Business Line Rewards Program.
You’ll earn one point for every dollar you spend on net purchases you make with an access card, which lets you make purchases directly from the credit line. You can also earn 1,000 bonus points every billing period if you spend $1,000 or more in net purchases.
Best for start-ups
Sometimes, credit lines require you to have a track record of several years in business with the current owner to qualify. The unsecured Wells Fargo Small Business Advantage® doesn’t, making it a great option for start-ups, though it does have a five-year term, after which it may be reviewed.
The unsecured line ranges from $5,000 to $50,000. And there may be an annual fee, depending on your credit line amount.
- Credit lines from $5,000 to $9,999: no annual fee
- Credit lines from $10,000 to $25,000: $95 annual fee
- Credit lines from $25,001 to $50,000: $175 annual fee
A business line of credit allows a business to borrow money, repay it and borrow again, up to the credit limit — similar to a credit card.
Business lines of credit aren’t all alike. Some are offered by banks. Others are offered by nonbank finance companies. Some are secured, which means they may require collateral. Collateral may take the form of business assets, commercial property, personal property (generally your home) or certificates of deposit. Other lines are unsecured, which means no collateral is required.
A line of credit comes with a credit limit, which is the maximum amount that you can borrow from it at any one time. Unlike a credit card, the line can incur interest as soon as you use any portion of the funds. The interest rate you’ll be charged for the amount you borrow is usually lower for a credit line than a credit card.
Before you apply for a business line of credit, research the terms, compare offers and read the fine print. Consider factors such as …
- Credit limit
- Interest rate
- Repayment period
- Annual review and renewal
- Requirements to be approved
- Any special perks or rewards
What are the requirements to get a business line of credit?
To get a business line of credit, you must apply and be approved by the lender. Whether your company is approved depends on whether it’s deemed creditworthy, and if you have business credit scores, those may be considered. But the requirements will vary by lender.
If you haven’t had a business line of credit before, a lender may look at individual credit history.
According to Bryan Doxford, chief lending officer at nonprofit New York state business lender Excelsior Growth Fund, a lender might look at things like “personal lines of credit, such as credit cards, to understand how you might handle and appropriately use a (business) line of credit.”
You can apply for a business line of credit before you need one, say if you’re worried about cash flow, or wait until you’re actually ready to use the funds. Understanding why you want the credit line may help you present a strong case to lenders when you apply.
Doxford suggests laying it out for your lender, showing them your cash flow cycle, any future gaps your business may have, and how a business line of credit might fill the gaps.