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Why Would a Business Need a Line of Credit?
Small business owners may consider opening a business line of credit for a number of reasons. This can include meeting an immediate need, using the funding for a long-term goal or having the flexibility and support to access cash quickly and easily.
Getting a line of credit gives a business the funding to help support its needs — both anticipated and unexpected. If a business opens a line of credit for $20,000 and needs $7,000 worth of funding, interest is only paid on the amount borrowed, reserving the remaining $13,000 for another day.
What Credit Score Is Needed for a Business Line of Credit?
Applying for a line of credit can involve a number of different qualifying factors. For one, what is your business credit score? To a prospective lender, the lower the credit score, the higher risk you are of defaulting on your loan.
Lenders working with people that have a low credit score will often include more protection to save them from making a bad investment. These added buffers can include:
- Higher interest rates
- Credit line limits
- Added fees (opening, maintaining, closing an account and missed payment)
- Tighter payment schedules
Credit scores range from 300-850. A range of 300-629 is considered a bad credit score, and a credit score of 720-850 is viewed as excellent. In between these ranges are a few more credit levels, including Fair (630-689) and Good (690-719).
The lower the credit score, the higher the risk of rejection when applying for a credit line. If an application is approved with a credit score that is considered bad or fair, odds are that the interest rate for the borrower will be high. There also may be a requirement for a personal guarantee commitment or other forms of collateral. The higher the credit score, the lower the interest rate and the terms of the lending may be better.
It's also worth mentioning here that your business credit score is different from your personal credit score. Online lenders are looking for your business's credit history and will not delve into personal loans such as mortgages, car or student loans or credit card history.
Other factors that are considered when applying for a business line of credit include how long the business has been opened and the annual revenue of the business.
What Is the Easiest Line of Credit to Get?
Most lenders will offer loans to even borrowers with a “Fair” credit score, but some will go lower. But having a low credit score may limit the amount that can be borrowed and will likely increase the interest rate. On our list of the best business lines of credit for small businesses, Lendio has the lowest credit score requirement of 560.
Payday loans and no-credit-check loans are a couple of common lines of credit that are easy to get. But despite the ease, you'll pay very high interest rates or monthly maintenance fees.
Managing Your Financial Options and Making the Right Decisions
There are a number of online lenders to choose from when it comes to opening a line of credit. Whether it’s an online lender or traditional bank, small business owners should know what their options are and which choice would work best for them. Waiting to open a line of credit for an unexpected opportunity, or worse, a catastrophic event, may be too late, especially if you need the money immediately.
Bank of America offers the support you’ll need when it comes to finding the solutions that will best meet the needs of your business. Whether it’s opening up a business checking account or credit card or looking into a business loan, having a partnership with the right financial institution is something that all business owners will need to consider. It may very well be the deciding factor when it comes to the success of your business.