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How to apply for a business line of credit

How to apply for a business line of credit

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How to apply for a business line of credit

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Zina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins.com.

Jordan Tarver is the assistant editor for loans at Forbes Advisor. Before joining Forbes Advisor, Jordan was an editor and writer for multiple finance sites, focusing on loans, credit cards and bank accounts. His goal is to create actionable content that enables people to make sound personal financial decisions. When he is not working on personal finance content, Jordan is a self-help author and world traveler who helps people experience the world and discover themselves.

While business lines of credit are common, they can also be confusing, so it’s important for potential borrowers to understand how they work before using one. Here’s what you need to know.

What’s a business line of credit?

How to apply for a business line of credit

A business line of credit is similar to a personal one: You’re able to borrow a certain amount of money when you need it. If you’re in a delivery business and a car breaks down for example, you can tap into your line of credit to pay for that repair. Owners of seasonal businesses may need to use a line of credit to pay for merchandise in July to sell in December.

Typically, lenders only charge interest on what you use, so if you borrow $10,000, you’ll only have to pay interest on that amount even if your line of credit is $50,000. Lines of credit are also revolving lines of credit, which means you can tap into one over and over again as long as you pay back what you owe.

How to apply for a business line of credit

But there’s one big difference between business and personal lines of credit. Business lines of credit usually come with a much higher borrowing amount, since businesses typically need more money than households to operate, and it can range from $5,000 to $150,000.

How to apply for a business line of credit.

When you apply for a business line of credit, banks and other traditional lenders usually want to view your revenue history, tax returns, bank account information, a balance sheet, and a profit-and-loss statement. And generally speaking, your business will need to be up and running for six months and will require at least $25,000 in annual revenue. You typically also need a credit score of 500 or more, as lenders want to know you’ll pay them back.

How to apply for a business line of credit

Watch out for fees.

Many people think that lines of credit come with an interest rate and that’s it. Unfortunately, there are often additional fees that can increase the total loan cost. For example, some banks charge origination fees, which are costs to set up a loan. Depending on the type of loan, there can also be administration fees, pre-payment fees, annual fees, and more.

Then there’s the interest rate, which some banks determine based on your credit score. If you have an excellent credit score, lenders are more likely to consider you a trustworthy borrower and will feel more comfortable loaning you money at a lower rate. If you have a lower score, prepare to pay more – rates can range from a few percent to about 20% or more, depending on the lender.

Rates are also determined by the Federal Reserve’s Fed Funds rate. When it rises, as it has over the last three years, borrowing costs climb too.

How to apply for a business line of creditSecured versus unsecured.

While lines of credit or working capital-related loans are essential to helping business owners manage their day-to-day cash flow needs, there are other types of loans too.

A popular option for companies is the traditional, fixed-term business loan, which allows people to borrow much more than they can with a line of credit. It works in a similar way to a mortgage – you borrow a lump sum and then pay it back over time. This is ideal for capital-intensive projects where you need a large cash infusion to get something off the ground.

Loans can also be secured or unsecured. A secured loan is when you put up collateral, such as a piece of equipment or a building, that a lender can then take possession of if you don’t pay back the loan. Secured loans typically come with lower interest rates because it’s less risky for the lender. If something goes awry, they can seize that asset to recoup any losses.

With unsecured, you don’t have to put any assets up for collateral, but an institution may charge a higher rate for the additional risk.

How fast can you access the funds?

How to apply for a business line of credit Was a business line of credit the right move?

Usually, companies will have an idea as to what they want to use a line of credit for, but for many businesses, it just sits there until they need it. But if your business is thriving because of it, and you’re able to pay it off in a reasonable time, then applying for one was the right decision.

As long as there are businesses operating in America, there will be lines of credit to help them manage their expenses and cash flow. It’s a key tool in the entrepreneur’s toolbox and one that can be a big factor in fueling business growth.

About PayPal for small businesses.

1 2018 Small Business Profile, United States Small Business Administration, 2018.

The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.

Sadly, established businesses have an easier time qualifying for a line of credit. However, it isn’t impossible to qualify for a line of credit as a new business owner.

In this post, we’ll explain how to get a business line of credit works, so you can secure financing to grow your new business.

Revolving vs. Non-Revolving Lines of Credit: Which One is Right for You?

Revolving credit lines allow you to borrow funds from a bank, credit union, or lender up to a set credit limit. This differs from a term loan, in which you borrow a lump sum loan amount and make equal-sized payments until it’s repaid.

With a revolving line of credit, interest only accrues on the amount that’s being used. Therefore, you won’t be required to pay interest when you aren’t using the credit line, which makes this more affordable than a non-revolving line. While some lenders charge a maintenance fee to keep the account open, there’s typically no costs if you don’t use the line.

Another line of credit option is non-revolving lines of credit, which is a lump sum product. Once you pay off the amount, your account will be closed. Therefore, if you want a line of credit for ongoing expenses, this might not be the best funding option for your business.

Ultimately, your new business could benefit from either line of credit option. If you’re unsure of how much financing you need, or if you’ll need financing in the long-term, it might be better to take out a non-revolving line to start. That way, you can close the account once your debts are repaid.

How to apply for a business line of credit

How to Apply for a Business Line of Credit for New Businesses:

Applying for a business line of credit is extremely easy. Most business lenders allow you to apply for funding online, so you don’t have to set up an in-person meeting.

Online lenders want to see a complete a picture of your business’s operations. Below, you’ll find examples of documents that financial institutions might require:

  • Personal and business tax returns
  • Financial statements from your business checking account
  • Business registration documents
  • Credit approval
  • Annual revenues
  • Business plan that includes information on your time in business, products and services, and industry.

For a new business without significant operating history, it’s important to provide as much financial information as possible. Include any records you have of past transactions, such as invoices paid to vendors, or outstanding accounts receivables. Remember that your credit line application should convince the creditor that your business will be able to responsibly repay its debts in full and on time.

Small business lines of credit come with varying repayment terms, interest rates, credit limits, and application processes. As a new business owner, choosing the right one may help your chances of being approved. This is especially true if you have no prior business experience.

Generally, business lenders prefer to lend money to business that have been open for at least 6 to 12 months. In addition, they’ll also want to see the following:

  • Steady cash flow
  • Long financial history
  • Strong credit history
  • Business longevity

However, if the line of credit provider sees that you have a track record of responsibly paying off debt and managing your money, you may be able to qualify as a startup owner.

How To Qualify for a Start up Business Line of Credit:

Applications from new entrepreneurs aren’t doomed; you can improve your chances of getting approved for a business line of credit the same way you would for any other kind of small business loan. One way, for instance, is by putting up collateral; this is called a secured line of credit.

In this case, collateral doesn’t have to be a large asset, such as a home, vehicle, or equipment. For a short-term product like a business line of credit, you may be able to pledge alternative sources of cash. For example, a lender may allow you to pledge the value of your accounts receivables. This is known as invoice financing.

Another option is to build business or personal credit before applying for a credit line or other type of financing.

For example, paying off business credit cards on time signals to lenders that your business can use credit responsibly and doesn’t have significant debt. Improving your personal credit score can also help, especially if the funder performs personal credit checks in the application process.

By waiting to apply for additional working capital until your business is established, you may be able to pursue an unsecured business line of credit instead. Most likely, if you prove that your finances are solid and that you’ve been able to maintain them, you won’t need to submit collateral.

Are There Other Financing Options Available to New Business Owners?

Although startup lines of credit are a viable small business funding option, there are other products you should consider. They include:

  • Small Business Loans
  • Business Credit Cards
  • Merchant Cash Advances
  • Invoice Financing
  • Equipment Financing
  • Commercial Real Estate Loans
  • Bridge Loans
  • SBA Loans
  • Business Grants
  • Crowdfunding

If your business has been operational for at least six months, Fora Financial may be able to help. We provide business loans to small business owners nationwide, and provide flexible options to fit your individual needs.

Conclusion: It’s Possible to Get Approved for a Startup Financing

It’s important to remember that the line of credit application process will vary by lender. Some creditors won’t require a personal credit check, which may or may not work in your favor.

Be sure to shop around to see which line of credit options are best suited to your business. Or, weigh your options further by researching other business funding sources, like the options included in the previous section.

The beginning stages of starting a business require financial wisdom, so you should be confident in your decision to pursue a startup line of credit (and your ability to qualify).

Editor’s Note: This post was updated for accuracy and comprehensiveness in March 2022.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

How to apply for a business line of credit

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A commercial business loan is money that your business can borrow from a lender and pay back over time with interest. A commercial business loan may be a good fit if you need to cover long-term costs to expand your business, like buying equipment or real estate.

Many banks and private lenders offer commercial business loans, but the terms of each loan vary depending on the lender and your qualifications. Compare business loans from multiple lenders to find the best fit for you.

What are commercial business loans?

Most commercial business loans are business term loans . These are lump sums that you borrow all at once and pay back over a set period, usually at a fixed interest rate.

Some types of commercial business loans are meant for specific purposes, such as:

Equipment financing. This loan can help you purchase large or highly specialized equipment.

Commercial real estate loans. Similar to mortgages, these loans can help you buy or renovate property.

Commercial auto loans. These are used to buy vans, trucks or other vehicles for your business.

Construction loans. Finance new building projects or major renovations with these loans.

The term "commercial business loans" may also refer to other types of business loans , like SBA loans or business lines of credit.

How Much Do You Need?

Where to get a commercial business loan

You can get a commercial business loan from multiple sources. Factors like cost, funding time and your business’s qualifications can help you determine where to look.

If you’ve been in business for at least two years and have good credit: Small-business loans from banks usually offer lower APRs than other business financing options. However, the application process tends to take longer than it does with online lenders, and you may have to provide collateral.

The U.S. Small Business Administration works with many lenders to offer several kinds of commercial business loans. SBA loans typically have long terms and low interest rates; but to qualify, they tend to require several years in business and good credit like banks do.

If you need funding fast or lack collateral: Online business loans can be approved more quickly than bank loans, sometimes within a day. Online lenders typically have less stringent requirements, too, meaning you can qualify for funding if you lack collateral or haven’t yet been in business for two years. APRs tend to be higher, but so do loan approval rates.

If you’re a startup or need $50,000 or less: Microloans are usually made by nonprofit lenders, and the SBA backs some microloans. They’re generally smaller than $50,000 and require detailed applications, but can be an option for business owners who are just starting and don’t qualify for traditional term loans.

How to get a commercial business loan

Follow these steps to get a commercial business loan.

1. Find out if you qualify

In general, to qualify for a business loan, you’ll need:

At least one year in business for online lenders and at least two years in business for banks.

A credit score of at least 680.

Enough annual revenue to comply with your lender’s requirement. This can range from $50,000 to $250,000.

2. Decide what type of financing to apply for

What kind of loan you need will depend on how much you need to borrow and what you need to finance; for example, you’ll probably want a commercial real estate loan for a property purchase.

3. Figure out how much to borrow

Use our business loan calculator to estimate your repayments.

4. Research lenders

Consider which lenders offer commercial loans you’re likely to qualify for and which offer the type of financing you need. Here’s a list of small-business lenders you may want to compare.

5. Apply for a loan

The application process will determine:

How much you can borrow. In general, qualifying for larger loans is more challenging.

Your interest rate. Qualifying for lower interest rates is usually more difficult. Commercial loan interest rates are typically fixed, but some loans have variable rates.

The loan term. Longer terms tend to be more difficult to qualify for.

If you get a loan offer that isn’t a good fit for your business, you can decline it.

Alternatives to commercial business loans

If a long-term loan doesn’t make sense for your business, consider these alternatives to commercial business loans:

If you need to cover short-term expenses: A business line of credit is a good fit for needs like managing cash flow. These revolving loans work a lot like credit cards: The lender allows your business to borrow money, up to a specific limit, on a revolving basis. Payments are made on an ongoing basis, and you only pay interest on what you borrow. As payments are made, you can continue to borrow more, up to your credit limit.

If your business can’t qualify for a commercial loan: Business credit cards can help you spread purchases out over several payments. Still, their relatively low credit limits may make it challenging if you need to finance a substantial purchase. You might also consider a personal loan for your business , which will likely offer a higher limit than a credit card but might come with a higher interest rate.

About the author: Rosalie Murphy is a small-business writer at NerdWallet. Read more

I've been in business for 18 years. I've remained small intentionally. Done all of my currency work through my business bank account.

Every company asks about my personal credit (it is fantastic) but act like it doesn't exist when it comes to my company getting a card or a line.

How can they insist I provide my personal credit when they ignore it for my business? What business is it of their's what my personal credit is? Why do they hit my personal score anytime I try to get business credit if they swear up and down the two have nothing to do with each other?

For the past 4 years, once a year, I try to get a new business card from a company. The inquiry hit to my personal score of about 5 points each time pisses me off.

Why can they have their cake and eat it too?

Everyday the revolution gets closer. Eat the rich.

You’d likely find the answer in the fine print but it’s most likely because you’re personally guaranteeing the debt.

As a Sole Prop, do you at least have an EIN? I’m thinking you do, since you have an SBA loan. Do you have a Dun&Bradstreet number? An Experian and Equifax Business Presence/score?

Without a minimum Paydex score of 80 from D&B, at least an 85-90 score from Experian, a 400+ from Equifax…which means that you have 3-5 business trade lines reporting, you’re going to keep bumping into the same issues.

Business credit takes time to build and in the initial stages, you WILL have to PG some of your apps. Banks like Chase, Citi, Wells Fargo, USBank etc prefer that you have an EIN AND a D&B number. They will pull your Experian or Equifax Business credit plus personal.

In the meantime, banks like Citizens, FNBO and financial/card companies like Kabbage, Capital On Tap, Divvy, Bret, etc will soft-pull your personal credit and will approve you for anywhere from $5,000 to $250,000, depending. BUT, some of those mentioned will ask for an EIN/D&B # on the app.

You should begin with American Express Business cards, from one initial hard pull, you will be able to get all the business cards you want, (soft pulls from then on) if you qualify, of course.

As a result of seasonal credit demands, entrepreneurs frequently encounter difficulties managing their cash flow. This is especially true of business startups during their early stages of development when they have not diversified enough to generate a constant positive cash flow. Once inventory has been purchased, it's necessary to ride out the cycle until accounts receivable have been collected. Without sufficient working capital, a serious cash flow problem could develop. These types of cash flow problems have forced many entrepreneurs to close down businesses that were making money on paper, but just ran out of cash.

Lines of credit accommodate the seasonal credit demands of your business along with ups and downs in your cash flow. They also enable you to purchase inventory in anticipation of future sales. Discuss establishing a line of credit with your bank at the beginning of your relationship. If you are just starting your business, the bank will probably not grant a credit line immediately.

A line of credit is a standard service provided by many banks that serve small businesses. Getting the loan approved depends on the business's ability to repay and/or the personal assets of the owner — for example, a second mortgage on a home, assignment of stocks and bonds, or assignment of the cash value of life insurance policies.

Banks will extend a secured line of credit to most startup ventures once the business is operational. The line may be unsecured if the business can demonstrate consistent earnings, an excellent capital position, and multiple sources of repayment. Traditionally, banks will commit a specified maximum amount of funds from which you are permitted to draw on as needed. You have the right to repay and re-borrow during the agreed-on time, which usually will not exceed a year. You pay interest only on the outstanding principal (the primary benefit of a line of credit versus a conventional loan).

In addition, the bank needs to know how you will repay the line when your first source of repayment does not come through. Bankers look for enough elasticity in your operations to accommodate temporary reversals in adverse situations. What happens when you discover that your inventory is not selling as projected? What secondary sources of repayment are available?

Banks may also require you to pay down your line of credit when you have not followed your payment schedule, even though the total amount of money that you borrowed is not due for several more months. Banks do not like to approve lines of credit for use in managing cash flow. Instead, lines of credit are intended for cyclical borrowing needs at identified pay-down intervals. A failure to pay back the money on schedule indicates a potential problem in your ability to manage cash.

Smart Tips for Establishing a Line of Credit

The bank will mostly likely require the owner's personal guarantee of repayment in order to issue a line of credit to a new venture. If your personal credit is poor, you may have a difficult time getting conventional financing until your company has a demonstrated history of positive cash flow.

If your business is relatively new and the bank is not satisfied with the primary and secondary sources of repayment, it may ask for personal collateral from you to secure the loan.

If the venture is a partnership or corporation with more than one principal, the bank will most likely collateralize the loan from all the principals involved to obtain a line of credit.

As with any loan, you must present reasonable financial documents that follow standard accounting practices to obtain a line of credit.

Unless you are a well-established business, you must provide pro forma cash flow documents that demonstrate your ability to pay back the money. Pro forma balance sheets and income statements will also be required.

If you are able to successfully establish a line of credit, use it wisely. It may be tempting to spend it because it's available, but that money comes at a price; if you use it for non-essentials or for capital expenditures rather than just cash flow stability, you may find it unavailable when you need it. Understand where a line of credit fits in your financial strategy and stick to it.

Scott “Social Media” Allen is a 25-year veteran technology entrepreneur, executive and consultant. He’s coauthor of The Virtual Handshake: Opening Doors and Closing Deals Online, the first book on the business use of social media, and The Emergence of The Relationship Economy. His latest venture, NFN8 Media , maintains a growing portfolio of niche content and community sites. He enjoys working with entrepreneurs and serves on the advisory board of several startups.

What is a Business Line of Credit & How Does it Work?

What is a Business Line of Credit & How Does it Work?

Every small business needs to be able to adapt to change, especially in times of growth or uneven cash flow. When you need ready access to cash and flexible terms for repaying borrowed funds, an unsecured line of credit can often be an ideal solution.

What is a small business line of credit?

A small business line of credit has more in common with a small business credit card than with a small business loan.

Like a small business loan, an unsecured line of credit provides a business with access to money that can be used to address any business expense that arises. Unlike a small business loan, however, there’s no lump-sum disbursement made at account opening that requires a subsequent monthly payment.

A small business line of credit is subject to credit review and annual renewal, and is revolving, like a credit card: Interest begins to accumulate once you draw funds, and the amount you pay (except for interest) is again available to be borrowed as you pay down your balance. As with a credit card, the lender will set a limit on the amount you may borrow.

Using a small business line of credit

The number-one reason to open a business line of credit is to gain access to short-term funding. Most businesses use these funds to support financing for operational expenses like supplies and payroll or for increasing inventory. Cyclical businesses often rely on an unsecured line of credit as a source of off-season working capital.

Unlike many small business loans, an unsecured line of credit is not designated for a specific purpose or purchase — it’s a good choice for small businesses looking for ways to better manage cash flow. Funds are typically drawn from the line of credit by using a business checking account, a small business credit card or even a Mobile Banking app.

Understanding secured and unsecured lines of credit

A small business line of credit is typically offered as unsecured debt, which means you don’t need to put up collateral (assets that the lender can sell if you default on the debt). Many unsecured lines of credit come with a variable interest rate and are available for sums ranging from $10,000 to $100,000.

For amounts greater than $100,000, you may be required to secure your line of credit with a blanket lien on your assets or a certificate of deposit.

What’s required to obtain a small business line of credit?

Be sure to research the specifics of any lender’s business line of credit requirements. For example, many banks will require a business to have been under current ownership for some fixed amount of time.

Rates for a business line of credit tend to be lower than those for a business credit card, which can charge more than 20% APR for purchases — and even more than that for cash advances.

Other advantages

Maintaining a line of credit in good standing may help build your business credit rating and position you for better loan terms if you seek future financing. Many small business experts suggest that first-time applicants should start a modest line of credit and pay off the debt quickly as a way of building a credit profile.

Keeping your small business finances running smoothly can often be a challenge in today’s fast-paced world. Depending on your specific business needs, a small business line of credit could be the simple solution you need to meet your goals for growth — at a pace that’s right for you.

How to apply for a business line of credit

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The U.S. Small Business Administration provides loan products, including multiple lines of credit, through private lenders to help small-business owners thrive. SBA lines of credit can be worth up to $5 million, and this type of small-business loan is typically best if you need short-term working capital to weather seasonal ups and downs or overcome temporary cash flow shortages.

What is an SBA line of credit?

An SBA line of credit is a flexible form of short-term financing that provides a reservoir of money that you can draw on as needed. You pay interest only on the amount you borrow, which is different from other SBA loans that provide a lump sum that you pay back in its entirety over time.

Most SBA credit lines are part of the CAPLines program, which offers fixed or revolving lines of credit to meet different small-business needs. Revolving CAPLines somewhat mirror a credit card — after being approved for a certain credit limit, you can tap these funds on an as-needed basis and your borrowing power goes back up with each repayment you make. If the credit line is fixed, the overall credit limit declines with every withdrawal, regardless of your repayments.

SBA Express lines of credit are also available. These are a variation of SBA Express loans , offering lower borrowing maximums (currently $1 million) but potentially faster funding.

Types of SBA CAPLines

There are four types of SBA CAPLines:

Seasonal CAPLines: This SBA line of credit is designed to provide cash flow to small-business owners who experience seasonal peaks and valleys in revenue. Funds can be used to cover increased labor costs and other expenses brought on by your business’s busy season.

Contract CAPLines: This kind of credit line is available to eligible small businesses that need funding to execute their working contracts. This can cover supplies, labor, materials and more.

Builders CAPLines: As the name implies, this SBA line of credit is for builders and general contractors who work on residential or commercial buildings. Funds can be used for expenses like materials or direct labor related to building or renovation projects.

Working CAPLines: This revolving line of credit provides small-business owners with working capital for all kinds of operating expenses. This can include labor, inventory, manufacturing and more. Working CAPLines may come with higher fees compared with those on other CAPLines.

Rates and terms for an SBA line of credit

CAPLines are part of the SBA 7(a) loan program , and the borrowing maximum (up to $5 million) and interest rates mirror those loans. As of this writing, SBA loan rates range from 5.5% to 8%.

Additional terms for an SBA line of credit depend on the specific product:

Apply and you can get a credit decision in minutes. Funds transfer as soon as the next business day.

We keep it simple

Draw from your dashboard. Funds arrive in your business checking account. We’re here to help if you need us.

You’re in control

No prepayment penalty. Always see your payment total before you commit. No confusing language.

How it works

How to apply for a business line of credit

Apply in two easy steps

Give us a look inside your business to get a quick credit decision. First, share some basic information about your company. Second, connect business accounts like your bank account and accounting software. We do not store your login credentials and applying will not affect your credit score.

Funds transfer right away

If approved, draw funds anytime. They’ll transfer to your account as soon as the next business day. You’ll always see your fees beforehand. Only pay when you draw funds.

Pay us back over time

You’ll pay in equal installments over the course of your 12 or 24 week plan. Your available credit replenishes as you pay. There’s no penalty to repay early.

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Do I qualify?

Based in the US

600+ personal FICO score

$100,000+ in annual revenue

Business checking account

Ideally 6+ months in business

Flexible payment solutions

How to apply for a business line of credit

Flex Pay gives you more ways to pay important business expenses. When a payment is due, we’ll make the payment with your Flex Account provided by MetaBank®, giving you 3 extra business days to pay—with no fees. Decide how to repay within the 3-day grace period, or automatically draw on your line of credit on a 12 or 24-week term, based on your selected preference.

For $99/month, Fundbox Line of Credit customers can upgrade to Fundbox Plus for exclusive benefits. Get 20% lower fees, 52 week repayment terms, monthly* repayment option, priority support, and more.

*Payments made once every four weeks.

How to apply for a business line of credit

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How to apply for a business line of credit

How to apply for a business line of credit

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Business Line of Credit Guide

How to apply for a business line of credit

How could your business benefit from a business line of credit?

If you own a small business, you probably already know that sometimes you need a little extra cash. Even the most successful small businesses experience slow sales, late invoice payments, urgent unplanned expenses, and other short-term situations where cash flow is uncertain. In situations like these, access to some extra working capital can mean the difference between closing your business or surviving the tough times and coming out on top.

Stephen Klumb, Senior Vice President and Chief Lending Officer, National Bank & Trust
Determining how much credit your business can obtain or should have can seem like a complicated endeavor for businesses. However, your banker can simplify the process and help you determine that figure, says Stephen Klumb, senior vice president and chief lending officer, National Bank & Trust.
“A line of credit is a commitment by a bank to a borrower to advance short-term money, working capital or receivables financing over a specified period of time for short-term working needs,” says Klumb. “And that line of credit can be estimated through a fairly simple formula.”
Smart Business spoke with Klumb about how to work with your banker to determine your line of credit and how to identify the right banker to help you through the process.
How can a business determine what its line of credit should be?
Take your total estimated annual gross revenue (sales) and divide by 365. That gives you your daily cash need. Next, determine your total number of accounts receivable, plus inventory days on hand (Use of Funds) and subtract your accounts payable days on hand (Source of Funds), and this is your usage. Multiply your daily cash need times the usage (accounts receivable days less accounts payable days) and you will get the estimated line of credit needed for your business.
For example:
Sales …………… $9,125,000/365 = $25,000 (daily cash need)

Accounts Receivable days on hand …………. 68 days (usage of cash)
Add Inventory days on hand ……………….. + 30 days (usage of cash)
____________________________________________________________
………………………………………………………………98 days (usage)
Less Accounts Payable days on hand …….. – 52 days (source of cash)
____________________________________________________________
………………………………………………………………………..46 days
Multiply by usage ………………………….. x $25,000 (daily cash need)
____________________________________________________________
………………………………………………….$1,150,000 (estimated need)
Your company estimated line of credit need is now known ($1,150,000 in the example) and that number sets the tone for discussion in terms of the amount of money you need in working capital to operate your business.
Is this number a moving target?
Generally, it’s a one-year commitment. Most customers do an annual projection, but if, for example, the business picked up a new contract or lost an existing contract, then it would become a point of discussion. A new contract could require an adjustment to the working capital needs. However, the number is not always a moving target. You might instead do a guidance line, which is a little extra during a period of time that eventually comes back to the normal operating line.
Is there such a thing as too much credit?
Absolutely. Too much credit, when not monitored, could become a problem if you’re allowing your receivables to go out too far. Talk to your bank about what your peer group average receivable days are and to get perspective on where you fall within that group. If your receivables are coming in later than those of your peer group, a good bank would recommend that you address your internal collection process to get your receivables in more quickly; otherwise, you’re borrowing money and the additional credit is taking up profits.
How do banks determine what credit line they’re willing to extend?
Because they’re giving you a line of credit to operate, they need to know your liquidity, so they’re going to use a current ratio. Current ratio is determined by taking current assets minus current liabilities, or a quick ratio, those assets that can be easily turned within a short period of time to produce cash.
Sometimes a line of credit will be established, but if it never goes to zero during a 12-month cycle ,you might lower your line and make a portion of it term debt to get back in balance between term debt and line of credit debt.
What can a company do to set itself up for a line of credit?
The best way to do it is to be on top of your accounts receivable aging report. Monitoring your accounts receivable for payment and having those reports available lets the banker know you are aware of where your receivables are. Having receivables crawl into 90 days could affect your operating line and won’t be counted as collateral.
What are some common mistakes businesses make when applying for a line of credit?
Not having their controller or accountant in meetings with their bankers. When you’re talking to a banker and he’s asking specifics, having the people there who know the answers makes the banker feel more comfortable. Meetings should include the owner, accountant and CFO for lines of credit or term debt. And be honest with your bankers. If you’re having a problem, the bank’s going to know, and it gives you the opportunity to explain why it happened.
How can your choice of bank affect how creditworthiness is determined?
A very large bank may use systems to determine credit. In short, the commercial lender feeds information into an often-automated system, and it comes back with an answer.
At community banks, generally speaking, there is individual involvement. They don’t use those types of systems and instead give more attention to the numbers and to understanding the individual business’ situation.
Regional banks are compartmentalized by market size and often have multiple officers handling each market. Once a business jumps into another category, it has to get a new loan officer. Today’s market is not just about being a lender, it’s value added. If your banker can’t bring value to the table, the bank is just a commodity, and the lowest price wins. Community banks provide a higher value because they are selling the value that can be brought to the relationship going forward.
Stephen Klumb is senior vice president and chief lending officer with National Bank & Trust. Reach him at 1-800-837-3011.
Insights Banking & Finance is brought to you by National Bank and Trust

Establishing business credit is an important step for any new small business. It helps you to (1) maintain a credit history separate from your personal credit history, (2) experience the business benefits of having good business credit, and (3) demonstrate separation between owners and the business.

Why separate credit histories?

If you have formed a limited liability company (LLC) or corporation for your small business, having a business credit history separate from your personal one can minimize the effect negative events one might have on the other. For example, if you have some financial missteps that impact your personal credit history and score, they shouldn’t impact your small business credit if you have established a clear separation and vice versa.

Why separate a business from the owners?

Unless you’re operating your small business as a sole proprietorship or general partnership, you need to demonstrate that the business is separate from the owners. One of the key benefits that corporations and LLCs provide the owners is protection of their personal assets. Keep this protection in place by consistently showing clear separation between the owners and the business.

Eight steps to establishing your business credit

1. Incorporate your business

Even though you may be incorporated when you’re reading this, it deserves a mention. With sole proprietorships and general partnerships, the business is legally the same as the owner. Therefore, there can be no separation of business credit history from personal. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).

2. Obtain an EIN

An EIN (federal tax identification number) is basically a social security number for a business. It is required on federal tax filings and is also required to open a business bank account in the name of the corporation or LLC. In order to comply with IRS requirements, many larger businesses also require an EIN from their vendors in order to pay them for services provided.

3. Open a business bank account

Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card (see below) for many financial transactions, be sure to pay the credit card bill from your business checking account.

4. Establish a business phone number

Whether you use a landline, cell phone, or you use VoIP, have a separate number for your business and in your business’ legal name. List that number in the directory so it can be found.

5. Open a business credit file

Open a business credit file with all three business reporting agencies: Experian, Equifax, and TransUnion.

6. Obtain business credit card(s)

Obtain at least one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.

7. Establish a line of credit with vendors or suppliers

Work with multiple vendors/or suppliers (at least five for example) to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.

8. Pay your bills on time

Perhaps it should go unsaid, but be sure to pay your bills on time. Like with your personal credit, late payments will negatively impact your business credit.

Benefits of having good business credit

Having good business credit can provide a number of benefits to a small business, including

  • Positioning your company for more favorable payment terms with new vendors and suppliers
  • Reducing the number of times you’ll need to prepay for products or services purchased
  • Allowing you to obtain better interest rates and credit terms from lenders and banks

Once you have established good business credit, be sure to monitor and protect it, just as you do with your personal credit.

Ready to start a business? Explore your business formation options today.

Use a tax identification number (TIN) to obtain credit by establishing a business. Tax identification numbers are also known as employer identification numbers (EIN). In order to have a credit file using a tax identification number, you should create a separate legal entity. Form a small corporation, apply for a TIN number, and establish business credit.

Get Established

Create your business. Establish a name, address and phone number for your business. Use a separate phone number than that of your home. When applying for credit, most companies verify your business phone number and address.

Form a business. Establish a small corporation by filing with the appropriate state in which you want to conduct business in. Go to yahoo.com or google.com, type in “secretary of state” and the state you want to form a business in. For example, for Oregon you would type on “Oregon Secretary of State.” Visit the state’s website, follow the instructions on filing a corporation.

Apply for a TIN. Once you have a business established you are now ready to file for a tax identification number. Apply online for a TIN number by visiting IRS.gov, click on “Apply for an Employer Identification Number (EIN) Online,” and follow the instructions to apply online.

Establish Credit

Apply for a business account. Begin by applying for an account at an office supply store, such as Staples. Go to staples.com, scroll down to “Staples Credit Center” and click; then go to business cards and click on “Revolving” or “Net Pay” and click “Apply Now.” Complete the application with your business information; enter your tax identification number under the TIN section. This is the first step in establishing credit under your tax identification number.

Apply for courier service. Apply for a UPS account to establish credit using your TIN. Go to ups.com, select your location, scroll down to quick links and click on “Open an Account.” Use the service and make a payment at least once before the first statement is issued. Courier services typically report payments to credit bureaus within 30 to 45 days after payment is made.

Apply for a charge card. Once you have established a couple of credit lines using your tax identification number, apply for a charge card. Apply for a gas card such as the Chevron business card. Visit chevrontexacobusinesscard.com, complete the entire online application, enter your TIN under “Federal ID Number,” and click “Submit.”

Contact your local city, county for additional business licenses that may be needed.

Warnings

Tax identification numbers are for tax and business purposes. Do not attempt to replace your social security number with a TIN for personal purposes.

Connect with a specialist to inquire about available products and services.

Preferred Rewards for Business clients can save even more with interest rate discounts of

Preferred Rewards for Business clients can save even more with interest rate discounts of

Preferred Rewards for Business clients can save even more with interest rate discounts of

Preferred Rewards for Business clients can save even more with interest rate discounts of

Applying is easy

Apply

Complete an application in-person or over the phone.

Get a decision

We’ll work together to determine your line amount and terms.

Access funds

Upon approval, a business lending specialist will help get financing in hand as soon as possible.

Looking for an unsecured line of credit?

A Business Advantage Credit Line can help you bridge the gap between payables and receivables with no collateral required.

So much more than a line of credit

Expert insights

Explore financing options and cash flow strategies on Small Business Resources.

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Business financing FAQs

Small Business Administration (SBA) collateral and documentation requirements are subject to SBA guidelines.

You must be 18 years old or otherwise have the ability to legally contract for automotive financing in your state of residence, and either a U.S. citizen or resident alien (permanent or non-permanent).

Bank of America and the Bank of America logo are registered trademarks of Bank of America Corporation.

Commercial Real Estate products are subject to product availability and subject to change. Actual loan terms, loan to value requirements, and documentation requirements are subject to product criteria and credit approval. For Owner-Occupied Commercial Real Estate loans (OOCRE), a loan term of up to 15 years and owner occupancy of 51% or more are required. Small Business Administration (SBA) financing is subject to approval through the SBA 504 and SBA 7(a) programs. Subject to credit approval. Some restrictions may apply.

Small Business Administration (SBA) financing is subject to approval through the SBA 504 and SBA 7(a) programs. Loan terms, collateral and documentation requirements apply. Actual amortization, rate and extension of credit are subject to necessary credit approval. Bank of America credit standards and documentation requirements apply. Some restrictions may apply.

Investment and insurance products:

  • Are not FDIC insured
  • Are not Bank Guaranteed
  • May Lose Value
  • Are not Deposits
  • Are Not Insured by Any Federal Government Agency
  • Are Not a Condition to Any Banking Service or Activity

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.

MLPF&S is a registered broker-dealer, member SIPC layer and a wholly owned subsidiary of Bank of America Corporation

How to apply for a business line of credit

If you’re in need of money, you might be curious about your available options. While there are more traditional options, such as personal loans, that offer a lump sum of cash and a fixed interest rate, there is also the option to get a credit line. A credit line can offer access to the capital you need and be a flexible option to consider.

What is a credit line?

A credit line is a a type of revolving credit. It’s an amount of money extended to you by a financial institution, such as a bank, that you can draw from when you need it. How much you get approved for will depend on your credit.

A credit line differs from a loan because you can draw upon any amount up to the limit at any time, instead of receiving a lump sum amount as you would with a loan. So if you have a $10,000 credit line, you can draw upon $5,000 for a new home repair project when you need it, while still having $5,000 left on your line of credit.

You can receive a credit line of a certain amount with a specific time to repay the amount you borrowed. Once you draw from the funds available to you, you’ll start accruing interest on the borrowed amount.

As you pay back what you borrowed, your available credit will increase, similar to a credit card. A line of credit can offer more flexibility in the amount you borrow and what you have access to, compared to a traditional loan.

Where to get a credit line

If you need a credit line, you can apply for one at a financial institution, such as a bank or credit union. You’ll want to shop around for the best rates and check out any limits and eligibility requirements.

You may be able to get a line of credit for several thousand dollars and up. For example, Wells Fargo offers a personal line of credit between $3,000 to $100,000.

Before applying for a credit line with a bank, check your credit report at AnnualCreditReport.com. The information in your credit report is used to create your credit score , so you want to make sure everything looks correct. If there are errors, you can dispute them.

You can also check your credit score on Credit Karma to see how strong your credit is. Your credit score shows a lender how creditworthy you are and can determine the amount of your credit line.

After checking your credit, you can apply for a credit line. Once approved, the financial institution will approve you for a specific amount and have a draw period in which you can use money from your credit line. The draw period can vary, but may last up to several years.

When you’re approved and ready to draw money from your credit line, the financial institution may give you a specific card or checks. In other cases, the financial institution may transfer the funds to your checking account.

After borrowing from the credit line, interest will start to accrue and you’ll begin to make payments. As you pay back the credit line, your available credit from your credit line will increase.

Types of credit lines

There are various types of credit lines that you may be eligible for, including secured and unsecured credit lines. Secured credit lines are backed by an asset, such as a car or home, which serves as collateral. Unsecured credit lines aren’t backed by any collateral, e.g. most credit cards.

One popular line of credit is a Home Equity Line of Credit, more commonly known as HELOC. Using a HELOC, homeowners can borrow funds against the equity from the home. This is considered a secured credit line as your home is used as collateral for the line of credit.

Other types of unsecured lines of credit, such as some personal lines of credit, don’t have any assets to serve as collateral but may have fees, though there may be an annual fee or upfront costs to access the line of credit. You might want to use one to pay for school expenses or car-maintenance costs, or to fund a business-related project — so long as you know you can repay the loan, that is.

The bottom line

If you need a line of credit, make sure you can afford to pay it back. Understand how much interest you might pay over time and know the terms and conditions from the lender.

If you’re responsible and only borrow what you need and can pay it back, a line of credit can be a funding option to consider if you need access to money.

Fast and Flexible Business Lines of Credit

Get revolving lines of credit from $25k to $150k at 0% Interest

Whether a startup or established business this by far is the most accessible and easiest type of capital to obtain.

Our clients receive between $25,000 and $150,000 in unsecured business lines of credit that only report to the business credit reporting agencies.

This provides you with 4 main benefits:

  1. Protects your personal credit
  2. Builds your business credit
  3. Provides access to cash and credit
  4. Establishes multiple banking relationships for your business

There are no restrictions; you can use the credit lines for any business or real estate investing need. We have been helping businesses for over 21 years obtain business lines of credit. And we can help you.

How it Works

Get Pre Qualified

Fill out the pre-qualification form. There’s no fee or obligation, and it won’t impact your credit.

Get Funding Projections

Upon underwriting completion we will provide you with funding projections in 24/48 hrs.

Get Funded

Access the business lines of credit in as little as 14 days.

What Your Business Will Get

  • $25,000 to $150,000 in combined credit limits
  • 4-5 revolving lines of business credit (bank issued)
  • No interest for 6-18 months
  • Reports to business credit reporting agencies
  • Does not report to personal credit

The revolving lines of credit set up for your business do not report to the consumer credit reporting agencies.

This enables you to protect your personal credit since all the purchase activity, payments and debt you carry on your business credit lines only report to the business credit reporting agencies not your personal credit.

  • Establish a business credit file for your company
  • Establish 4-5 positive accounts reporting to your business credit file
  • Generates a business credit score/rating for your business
  • Positions the business for future credit limits increases

How to apply for a business line of credit

What You Need to Qualify

This program is based on personal credit scores/reports NOT past business performance. We do not look at what the business has done, but what the business COULD do if properly funded.

  • Minimum of 690 FICO® Scores
  • Minimum of one personal credit card reporting with a $2,500 limit
  • Favorable credit utilization ratio
  • No excessive inquiries
  • Must have a separate legal entity (Corporation, LLC or Limited Partnership)

*We accept credit partners if your credit is not quite good enough. If your file is too thin with limited depth we also have a personal credit funding program to help you build up your personal credit file while gaining access to credit and capital. This will help position you to get qualified for one of our unsecured business funding programs in a short period of time.

Why Should You Get Business Lines of Credit?

Do you know how difficult it is to get funding if you are a start-up, small business, or real estate investor?

Are you having trouble getting the cash you need to grow your business or execute your real estate deals?

Did you ever want to start a new business or invest in real estate but didn’t want to risk your personal credit or life savings?

We can get you cash fast by leveraging the strength of your personal credit. Our in depth understanding of business credit and financing means we can provide unsecured business lines of credit to new and growing businesses in as fast as 14 days.

Let us show you how to get the cash you need.

Examples of how you can use unsecured business lines of credit include (but are not limited to):

Use a confident and formal tone. Be specific about why you want a credit account and why you are a good credit risk.

Example Letter #1

I want to establish a line of credit with your company. My employees are making more and more trips to your store and the need to prepare a check for each purchase is becoming inconvenient. It would be much easier to pay at the end of each month. Based on the last few months’ purchases, I think a $10,000 credit line is sufficient for now.

If you have any concerns about my company’s credit worthiness, please feel free to contact the following companies we have dealt with over the last few years:

1600 Main Street

Springfield, Kansas 12345

1600 Main Street

Springfield, Kansas 12345

Thank you for your assistance. I look forward to hearing from you.

Example Letter #2

We have been purchasing supplies from Doe Corporation for the last nine months on a cash basis and wish to open a charge account for future transactions with your company. It will ease our bookkeeping tasks to pay bills monthly rather than on delivery. If you would like to consult other companies with whom we have done business, please contact the enclosed credit references. We look forward to your speedy reply.

Example Letter #3

I would like to open a charge account with Doe’s Tire. Our fleet of cars and trucks is growing at such a rate that it only makes sense to place our tire needs wholly in Doe’s capable hands. A quick credit check will reveal that our company’s credit is spotless, so I am confident that a $2000 revolving credit line will serve both of us well. I have enclosed a completed standard credit application form. I look forward to your speedy reply.

Example Letter #4

We have been very pleased with the quality of your machine and fabrication work on the few custom orders we have brought you. We would be happy if we could open a charge account with you and have you perform all of our automotive machine shop services. Doe’s normally does $600 per month in machine service, and we have always done it in-house. However, our machinist has retired, and we need reliable service on a charge basis. Any of the local automotive suppliers will gladly vouch for our good credit, and we will be happy to complete an application to expedite the process. Please respond as quickly as possible, so that we may begin taking in machine work again soon.

How to apply for a business line of credit

For many small business owners, the ideal business credit card is one that does not require them to provide a Social Security number on the application. Some cards let you apply with a taxpayer identification number, but it may take some legwork.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

For many small business owners, the ideal business credit card is one that does not require them to provide a Social Security number on the application.

Some simply don’t want their business credit to be linked to their Social Security number; they prefer to build credit for their business under their federal tax ID. Others may not have a Social Security number yet. Sometimes that is the case for new immigrants who run a business.

Can you get a business credit card without an SSN?

Fortunately, it is possible to get a business credit card without a Social Security number, but it is harder to do than applying with one.

There are generally two ways to do this. Some business credit cards will let you apply with an individual taxpayer identification number (ITIN), a number available to immigrants and their spouses. You may have to review a number of credit card applications online to find one that will allow you to apply using your ITIN.

Other business credit cards will let you apply using your employer identification number (EIN), a federal tax identification number that the government uses to identify a business entity. You can apply for one through the IRS for free.

Why most credit cards require a Social Security number

Most credit cards require a Social Security number because, under federal law, financial institutions must verify the identity of anyone who opens a new account. Banks will typically require an identification number such as a Social Security number, passport number or ITIN to make sure they’ve covered their legal obligations.

How to apply for a business credit card without a Social Security number

It takes several steps to apply for a business credit card without a Social Security number.

  • Research credit cards that allow you to apply with another form of identification.
  • Once you have identified the card you want to apply for, start the application to see what form of identification number is necessary.
  • Apply for the identification you need. The IRS has published a guide to getting an ITIN. If you need an EIN, you can apply here.
  • Once you have obtained your ID, submit your application.

Consider getting a business credit card with an EIN

Many business owners consider it advantageous to apply for a credit card using an EIN. One benefit of using an EIN is that it will help you build your business’s credit profile. Credit bureaus track businesses by their EIN.

Here are some cards that will allow you to apply with an EIN (but note that you may also need a Social Security number or an ITIN):

Bottom line

It takes some extra effort to apply for a business credit card without a Social Security number, but for many small businesses, it is worth the time. Having a business credit card can help you build your company’s credit profile, paving the way to additional credit when you need it to grow your business.

*All information about the CitiBusiness AAdvantage Platinum Select Mastercard has been collected independently by CreditCards.com. The issuer did not provide the content, nor is it responsible for its accuracy.

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Elaine Pofeldt writes the Your Business Credit column for CreditCards.com, answering a question every week about small business and credit. Pofeldt is a journalist who specializes in entrepreneurship and careers, contributing to publications such as CNBC, Forbes, Money, and many others. She is the author of “The Million-Dollar, One-Person Business,” a look at how solo entrepreneurs are scaling to seven-figure revenue without hiring employees. She is a former senior editor at Fortune Small Business magazine and co-founder of www.200kfreelancer.com, a website for independent professionals.

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Stabilize your cash flow but only pay for what you use

How to apply for a business line of credit

Entrepreneurs frequently encounter difficulties managing their cash flow as a result of seasonal credit demands and time gaps between capital needs and revenue realization. This is especially true of business start-ups during their early stages of development when they have not diversified enough to generate a constant positive cash flow. Once inventory has been purchased, it is necessary to ride out the cycle until accounts receivable have been collected. Without sufficient working capital, a serious cash flow problem could develop. These types of cash flow problems have forced many entrepreneurs to close down businesses that were making money on paper but just ran out of cash.

Lines of credit accommodate the seasonal credit demands of your business along with ups and downs in your cash flow. They also enable you to purchase inventory in anticipation of future sales. Discuss establishing a line of credit with your bank at the beginning of your relationship. If you are just starting your business, the bank will probably not grant a credit line immediately.

A line of credit is a standard service provided by many banks that serve small businesses. Getting the loan approved depends on the business’s ability to repay and/or the personal assets of the owner, for example, a second mortgage on a home, assignment of stocks and bonds, or assignment of the cash value of life insurance policies.

Banks will extend a secured line of credit to most start-up ventures. The line may be unsecured if the business can demonstrate consistent earnings, an excellent capital position, and multiple sources of repayment. Traditionally, banks will commit a specified maximum amount of funds from which you are permitted to draw on as needed. You have the right to repay and re-borrow during the agreed-on time, which usually will not exceed a year. You pay interest only on the outstanding principal.

In addition, the bank needs to know how you will repay the line when your first source of repayment does not come through. Bankers look for enough elasticity in your operations to accommodate temporary reversals in adverse situations. What happens when you discover that your inventory is not selling as projected? What secondary sources of repayment are available?

Banks may also require you to pay down your line of credit when you have not followed your payment schedule, even though the total amount of money that you borrowed is not due for several more months. Banks do not like to approve lines of credit for use in managing cash flow. Instead, lines of credit are intended for cyclical borrowing needs at identified pay-down intervals. A failure to pay back the money on schedule indicates a potential problem in your ability to manage cash.