How to Apply for a Small Business Line of Credit
For small business owners to thrive, having adequate cash flow is crucial, but having access to funds from a small business line of credit can be almost as critical. While traditional bank loans are subject to credit approval and can often take weeks or months to get funded, a small business line of credit can be approved in 24 hours. And unlike getting cash advances from a business credit card, which can saddle your small business with extremely high-interest rates, a small business line of credit is a low-cost option.
A small business line of credit is a type of loan called “revolving” credit available from banks, credit unions, and online lenders. Borrowers receive a finite sum of money to draw money from for any business expenses the small business deems necessary. The borrower then makes payments (including interest and/or fees) on only the amount drawn until it is fully repaid. Then the total amount is available again—up to the credit limit—and there is nothing to pay until another withdrawal.
A traditional business loan also gives business owners a fixed amount of money to borrow, and the entire sum is deposited to the borrower’s bank account or business checking account. However, one of the ways a traditional loan differs from a small business line is that you must make fixed monthly payments for the duration of the loan term to pay it back. In addition, small businesses may not meet the annual revenue and other conditions established by bank members under FDIC regulations.
What’s Needed to Apply for a Small Business Line of Credit?
Typically, applying for a small business line of credit is much less hassle than filling out a bank loan application. In addition to financial documentation, loans are usually secured, which means the business will need collateral, such as real estate, to back the loan. Credit lines may be secured or unsecured business lines, the latter of which requires no collateral.
To apply for a small business line of credit, you should be prepared to provide the following documentation:
- Recent business tax returns
- Recent personal tax returns
- Bank account information and bank statements
- Financial statements (balance sheet, income statement)
- Federal Tax Identification Number or Employer Identification Number (EIN)
- Social Security Number
- Business entity type (sole proprietorship, partnership, corporation, limited liability company)
- Past loan documentation
The Small Business LOC Application Process
Once you’ve gathered the proper documentation, you can expect the process to be straightforward.
Check your qualifications
Before filling out the small business line of credit application, make sure your small business meets the lenders’ requirements for qualifications.
- Is there a minimum business credit score and/or personal credit score?
- Is there a minimum monthly or annual revenue requirement?
- Is there a minimum number of years in business?
Filling out the application
- It’s important to know what kind of small business line of credit is right for your business’s needs. Are you seeking working capital to make ends meet during slow sales seasons? Is there a specific repair to make or a piece of equipment to buy? Or are you waiting for a large, outstanding invoice to be paid? Don’t borrow more than you need so you can pay the loan back quickly and not overwhelm your business with debt.
- How much you intend to borrow helps you consider whether you want a short-term or long-term small business line of credit. If you plan to pay off the credit line quickly and save on paying more interest, a short-term loan is ideal.
- Today, most loan applications can be filled out online, and you can securely upload documents to the lender’s website.
Wait to hear back
Technology has sped up the process for evaluating loan applications, which means you might get your answer within one to two days. Or, the lender may ask you to submit more documentation depending on how much money you’re requesting and your company’s financial history.
Sign official loan papers
Thanks to technological advances, in-person signing is rarely required. Everything can be done online, including receiving the loan. The lender may give you a choice of how to receive the money, either as a lump sum deposited into your bank account or as a debit card to use for whatever business purposes you see fit.
Make sure your company keeps detailed records on how you spend your small business line of credit. When tax season rolls around, you can deduct interest and fees paid on the funds you borrowed from the credit line. However, like all business expenses, the Internal Revenue Service (IRS) must see that the cost is both “ordinary and necessary” for your company. Finally, make sure you make payments on time as a small business line of credit affects your credit score.
Financing Solutions is an alternative lender offering an easy application process (it takes less than two minutes to fill out) and requires no collateral or documentation for a written offer letter. Other alternative lenders have a much longer application process and can be more expensive.
The founders of Financing Solutions have started and grown several companies together; therefore, they understand how important it is to keep costs low. That’s why we don’t charge you to set up the credit line and don’t charge maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day. We make approval decisions based on our decades of experience working with small businesses. Find out today why we have five-star ratings from the Better Business Bureau and Google. Highlights of our small business line of credit include:
- There are no costs to set it up or keep it in place
- The easy 2-minute application online application
- If approved, you’ll receive a same-day, no-obligation offer letter
- The fastest setup, 48-72 hours
- Once you have the line of credit, requests for funds are wired to your bank in minutes
- You can use your line of credit whenever needed
- Inexpensive when used (low fees)
- There are no restrictions in place or collateral required
- No personal guarantee is required, either
- Financing Solutions is a leading provider of lines of credit
- We are a reputable company with an A+ & 5-star rating
- You can pay off the line whenever you are ready
- The credit line is easy to renew and renews yearly
- You have a secured account portal access 24 x 7
A small business line of credit is a good funding resource available whenever your company needs it, without the heavy burden of term loan requirements. If you want to see if your small business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.