Business Line of Credit

A business line of credit is like an unsecured credit card businesses get from banks; they have a spending limit, which the bank decides, and they can spend up to that limit per month.

The funds accumulate interest until paid off.

Businesses often use lines of credit for short term funding.

Business Line of Credit Requirements

The requirements for a business line of credit are different from lender to lender.

In general, most lenders require having been in business for at least 6 months, at least $25,000 in annual revenue, and a credit score of around 500.

However, some traditional lenders may have steeper requirements.

How to Get a Business Line of Credit

To get a business line of credit, you must first compare your options and check their requirements.

Once you find one you qualify for, you must gather certain financial documents, such as bank statements, financial statements, and some legal documents.

Once you have your documentation and a willing lender, you can apply.

No Doc Business Line of Credit

A no doc business line of credit is like a line of credit offered by banks but it requires less paperwork.

These lines of credit are offered by alternative lenders that operate differently from traditional banks.

These lenders also tend to offer a number of other short-term financing solutions for small businesses.

Stated Income Business Line of Credit

A stated income business line of credit is a revolving credit line for which there is no income check requirement.

These lines of credit offer businesses with limited income history an opportunity to receive businesses financing.

These lines of credit often come with higher interest rates and a collateral requirement.

Business Line of Credit FAQs

A line of credit is money lent to an individual or business. If a line of credit is revolving, then the line of credit will replenish as the borrower pays back money borrowed.
The acronym LOC stands for Line of Credit.
A revolving line of credit is one which replenishes when the loan is paid off. An example of this is a credit card. A non-revolving line of credit closes once the loan is paid off, such as a student loan.
A loan is typically a lump sum whereas a line of credit is typically revolving which allows for the borrower to draw, repay, and again draw as needed.

Line of Credit (LOC) Definition

What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving

Lines of credit will either remain open, or will close, once the loan has been repaid.

Revolving lines of credit are considered “revolving”because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.

In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.

Non-revolving credit usually has a lower interest rate.

How does a Line of Credit Work? Secured vs Unsecured

Loans may be unsecured loans, or secured by collateral.

A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.

Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.

Using Credit Lines More Responsibly

While a high line of credit can be an indicator of a business’ ability to pay, it is important to be cautious about its risks, too. Learn how you can be more responsible with your credit line by connecting to a financial advisor in Terre Haute, IN. If you live outside the area, please feel free to browse through our financial advisor page instead.

Understanding a Credit Line FAQs

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.