What Is a Small Business Line of Credit? DoNotPay Has the Answer
Are you thinking about borrowing some money to help you cover your startup costs? Getting a small business line of credit might be the solution you are looking for. Our article will explain how this type of loan works, break down the requirements, and show you what other loan options you can choose from. With our help, you can also draft a convincing loan request letter to submit with your application.
Business lines of credit (LOC) provide business owners with funds that they can use to cover various expenses, such as buying new equipment. LOC gives you a limited amount of money that you can spend whenever you want.
If you get a LOC, you can reuse it and repay it as often as you want, but your payments have to be timely, and you cannot exceed the credit limit. You will pay interest only on the amount you spend, not on the loan limit.
Getting a line of credit will help you:
- Maintain cash flow during the off-season—A LOC is a great solution for balancing cash flow as it provides you with a decent budget during the slow seasons when your income might be low
- Improve your business adaptability—By being able to spend borrowed money at any time, you will get a chance to afford limited-time offers and take advantage of opportunities
- Build your business credit score—Replaying a LOC in a timely manner will help you improve your business credit rating
There are two types of lines of credit loans—a secured and an unsecured LOC. The difference is that you do not need to put up an asset as collateral for the former, whereas you have to for the latter.
The requirements for getting a small business line of credit depend on the lender you opt for and whether you get a secured or unsecured LOC.
Typically, you must:
- Have run your business for a certain period
- Present financial statements with income tax returns for the last two years
- Present proof of revenue and business health
- Prove to have a solid personal credit score (above 600)
Various banks and other lenders offer business lines of credit. Consult the table below to find out about the best options:
|Small Business Lines of Credit Lenders||Details|
|BlueVine||If you want an easy-to-apply loan with a fast approval process, you should consider BlueVine. You do not need to have an excellent credit score to apply, and the maximum amount you can borrow is $250,000|
|JPMorgan Chase||JPMorgan Chase offers $500,000 with an interest rate of up to 25%. To qualify for this loan, you need to have a credit score of at least 700. You can repay this loan in monthly installments|
|TD Bank||TD offers interest-only payments, which means that your monthly payments only cover the interest charges of the loan. At the end of the term, you will still have to pay the original amount you borrowed (up to $100,000)|
|Fundbox||Fundbox has short repayment terms (12 or 24 weeks) and offers a maximum of $150,000|
|OnDeck||If you have a low credit score and have been in business for a short period, you should opt for OnDeck. You can borrow up to $100,000, and the average interest rate is over 35%|
Applying for a small business line of credit requires you to prepare certain documentation, such as:
- Personal and business tax returns
- Bank account information
- Checking account information
- Business plan
- A copy of your ID or driving license
- Loan request letter
Most people face difficulties when writing a loan request letter. This is one of the most important documents that you have to file as the lender will review it to check whether you would be a responsible client.
To draft a mistake-free and compelling letter without paying hundreds of dollars for a lawyer, you should subscribe to DoNotPay. We will generate a convincing request letter for you that will boost your chances of getting a loan.
If you need help drafting a loan request letter, subscribe to DoNotPay! Our simple-to-use tool will generate a tailor-made loan request letter for you in a matter of minutes. To get the letter, you need to:
- Find our Business Loan Request Letter tool
- Provide important info by answering our chatbot’s questions
- Upload the required documents
We will process your request instantly, draft a loan request letter, and forward it to the lender in no time. Haven’t found an adequate lender for your business? Use DoNotPay’s Find Online Business Loan Lender tool to get a list of the best lenders for you.
Not sure whether you qualify for a small business line of credit? Consider applying for the following loan types:
- The United States Small Business Administration (SBA) loans—The SBA offers various loan programs through which you can borrow up to $5,5 million
- Startup loans—Do you want to start a new business, but you don't have the means to cover all the initial costs? Apply for a startup loan, and get up to $750,000
- Microloans—If your financial needs can be satisfied with a small amount of money, a microloan should be your choice
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Some of the small-business-related matters we can help you with are:
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