Best Startup Business Lines Of Credit 2024 (2024)

Best Startup Business Lines of Credit September 2024

Summary: Best Business Line of Credit for Startups

Tips to Compare Startup Business Lines of Credit

When you’re running a startup, it’s necessary to access capital to fund day-to-day operations and grow the company. A line of credit is one way to get that funding, and it can be a helpful tool for managing cash flow and covering unexpected expenses. But with so many options out there, it can be tough to determine which line of credit is right for your business.

Here are a few tips to help you compare lines of credit and choose one that fits your needs:

• Look for a credit line with no hidden fees. Some lines of credit come with annual fees, origination fees and other hidden charges to help cover the lender’s administrative costs. Read the fine print so you know exactly what you’re getting into and, where possible, choose a lender that does not charge extensive fees that drive up the cost of borrowing.
• Compare interest rates and terms. Interest rates on lines of credit can vary widely but typically range from 10% to 80%, with the most competitive rates reserved for those with excellent credit. Draw periods often last 12 to 24 months. Choose a lender with interest rates and repayment terms that align with your budget and borrowing needs.
• Consider your collateral options. Secured lines of credit require collateral like real estate or other valuable business assets, while other financing does not. If you’re not comfortable pledging collateral for a loan, opt for an unsecured business line of credit for your startup.
• Choose a lender you’re comfortable with. Shop around and compare lender options to find a financial institution you trust and feel comfortable doing business with. This may involve working with your current bank, reading online reviews and asking friends and colleagues for recommendations.
• Consider the credit limit and how it will meet your needs. Make sure the credit limit is high enough to cover your needs but not so high that you’ll be tempted to overspend.
• Make sure the line of credit is flexible to grow with your business. As your business grows, you’ll need access to more capital. Choose a line of credit that has the potential to grow with your business so you’re not stuck with financing that doesn’t meet your needs down the road.

What Is a Business Line of Credit?

A business line of credit is a type of financing that provides companies with access to capital to cover operating costs and other ongoing expenses. Lines of credit are similar to credit cards in that the borrower can access cash up to a certain limit, pay it back over time and then withdraw the same funds repeatedly during the draw period.

Unlike a business loan, which is disbursed as a lump sum, borrowers can access lines of credit on an as-needed basis, and interest only accrues on the outstanding balance. The best business lines of credit feature competitive interest rates, low fees and flexible loan terms.

Business Line of Credit vs. Business Loan

There are a few key differences between business lines of credit and business loans. Business lines of credit are revolving, which means you can borrow money again once you pay it back. Business loans, on the other hand, are one-time loans with interest accruing on the entire loan amount beginning at disbursem*nt.

Business lines of credit also are more flexible than business loans and can be used for a range of purposes. In contrast, business loans are often restricted to a specified use, like the purchase of equipment. Line of credit borrowing limits can also increase, which enables the financing to grow with a company as it expands, rather than having a fixed loan amount.

How Does a Business Line of Credit Work

Business lines of credit let borrowers access cash for operating expenses and other ongoing costs on an as-needed basis. Once a startup owner is approved for a line of credit and signs the financing agreement, they can access the funds on a revolving basis.

Interest accrues on the outstanding balance and monthly payments begin once the first withdrawal is made. After a borrower pays down their balance, they can reuse those funds for the duration of the draw period—typically 12 to 24 months. When the draw period ends, the repayment period begins and the outstanding balance must be paid off over a set period.

Because interest only accrues on the outstanding balance, this type of financing is a good option for business owners who need to withdraw funds gradually, rather than as a lump sum.

Pros and Cons of a Startup Business Line of Credit

Startup business lines of credit can get your business the cash it needs, but there are downsides:

Pros:

• Quick cash. Depending on the lender, getting approved for a business line of credit—especially an unsecured one—can happen within a few days. This offers quick access to money for payroll, supplies and other expenses.
• Continuous source of funds. If you’re unsure how much money you need to fund your expenses, credit lines offer an open-ended amount you can continually use and pay off as necessary.
• Accrues interest on what you borrow. Unlike installment loans where interest is charged on a lump sum over an entire term, interest on business lines of credit is only charged on the amount you draw from the account.

Cons:

• High-interest rates. Business lines of credit rates are often variable and can be high if you don’t have strong credit. A credit line can also become risky if you make just minimum payments, allowing high-interest debt to accumulate.
• Ongoing fees. Some lenders charge annual fees to keep credit lines open. Creditors may also charge draw fees each time you borrow money.
• Credit line limitations. Having limited revenue when starting a business could mean you only qualify for a small amount of credit that’s not sufficient to fund your operation.

Where To Get a Startup Business Line of Credit

Business owners can get business lines of credit from banks and online lenders. Some lenders offer credit lines that require just six months in business, $50,000 in annual revenue and a minimum credit score of 560. However, having a minimum of one year in business, stronger credit and higher revenue could improve your odds of qualifying with certain lenders.

Traditional banks also offer business credit lines, though they tend to work with more established enterprises. Qualifying for a loan from a brick-and-mortar bank may be difficult without a strong credit score, consistent revenue and several years in business.

If you don’t meet the minimum requirements for a business line of credit, consider a credit card, personal loan or SBA microloan to fund your business.

How to Get a Startup Business Line of Credit

Getting a line of credit for your startup is similar to applying for other types of financing. Startup owners can apply online or, in some cases, at a brick-and-mortar bank or credit union. However, the process varies by lender.

To qualify for a startup business line of credit, you will may need to meet these—or similar—requirements:

• Minimum personal credit score of 600
• Annual revenue of at least $100,000
• Have been in business for at least six months

After completing a formal application, prospective borrowers also must provide a range of documents demonstrating the financial stability of their startup. These documents vary but often include:

• A business plan illustrating the startup’s ability to generate revenue
• Copies of business registration documents and other legal documents
• Personal and business bank statements and tax returns
• Profit and loss statements and balance sheets showing sufficient cash flow to make monthly debt payments

Methodology

We reviewed 16 popular lenders based on 16 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the best lenders based on the weighting assigned to each category:

• Loan cost: 35%
• Loan details: 25%
• Customer experience: 20%
• Eligibility and accessibility: 10%
• Application process: 10%

Within each major category, we also considered several characteristics, including available loan amounts, repayment terms and applicable fees. We also looked at minimum credit score and time in business requirements and the geographic availability of the lender. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like online applications, prequalification options and mobile apps.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

To learn more about how Forbes Advisor rates lenders, and our editorial process, check out our .

Forbes Advisor Staff Writer Taylor Medine contributed to this article.

¹The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.

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