Guide to Getting a Business Line of Credit

Apply for up to $100,000 of ready cash with a simple online form

By Daniel Kehrer, Editor, Business.com & Work.com

1. Remodel, upgrade or expand your business into a new space.
2. Upgrade your phone system, computers or other equipment and technology.
3. Acquire extra inventory for upcoming promotions or seasonal spikes.
4. Pursue a business opportunity or cover unexpected expenses.

Action Steps
The best contacts and resources to help you get it done

Tap your small business banker for a business line of credit

Banks that serve small biz offer commercial lines of credit. Biggies like Wells Fargo offer small business credit lines up to $100,000 that you can apply for online, even if you're not already a customer.

I recommend: Check the business line of credit line offerings at these banks active in serving small business: Wells Fargo, Bank of America, Washington Mutual, Wachovia, Key Bank. Or for strictly web-based banking, try NetBank.

Prepare the information you'll need to borrow money

To obtain a credit line, you may need to supply financial information about your business and/or yourself to potential lenders.

I recommend: The U.S. Small Business Administration has a good section on points to consider when borrowing money for your small business via loans or lines of credit. Pay special attention to credit history and questions a bank might ask. The Work.com Guide to Building a Business Credit Rating might also be of interest.

Calculate your working capital needs

For help figuring out how big a credit line you need, use this free online calculator.

I recommend: Just plug your numbers into the Working Capital Calculator.

Look to non-banks like UPS and American Express

UPS - a big name in small biz shipping - is also a major small business lender under its UPS Capital wing, offering loans and lines of credit. And the American Express 'Open for Business' program offers business lines of credit.

I recommend: Check the case histories of how UPS Capital is helping small businesses grow and see the various small business loan solutions that are offered. The business line of credit from American Express ranges from $10,000 to $100,000 with no collateral needed. There's an easy online application and the APR is as low as prime plus 2%.

Comparison shop multiple sources

Sources of small business credit lines are numerous. To find the perfect fit and absolute best terms, you can comparison shop among many lenders.

I recommend: Enter your information at BusinessFinance or iBank – both are web portals that match lenders with small businesses, to find the best fit for your particular needs.

Need more money? SBA-backed lines to $2 million

The U.S. Small Business Administration (SBA) helps small businesses meet short-term and working capital needs through its CAPLines program. Choose from five types of credit lines, including seasonal, contract-based, builder's line, asset-based and small line.

I recommend: Visit the SBA CAPLines site for complete program details on all types of CAPLines loans and business lines of credit. Also check the types of businesses that are eligible. Local SBA web sites list lenders. Choose a state to locate the nearest district office, or just enter your zip code.

Helpful advice for making the most of this Guide

• •  Beware of carrying 'evergreen' balances on your credit line. To keep the credit in place and your lender happy, you need to periodically pay down the debt.
• •  While you only pay interest on the portion of a credit line you use, there may be an initial setup fee and possibly an annual fee to keep it open.
• •  The key factor in obtaining a credit line will be your business cash flow.
• •  If your biz can't quality for long-term credit, ask for an 'asset-based' line.
• •  Remember, the best time to set up a credit line is BEFORE you need it.

Guide to Business Credit Basics

Learning business credit basics can help your company invest and grow

By Jessica Drew, Freelance Business Writer & Editor

Action Steps
The best contacts and resources to help you get it done

Know your credit score and business credit information

By knowing your credit score, you know where you stand and what kind of terms you can expect from a business credit provider. If you have excellent credit and your business has a long and successful established history, you can expect a much more favorable rate than if your credit and business history is non-existent, fair or bad.

I recommend: By law you are required to be able to obtain your credit report for free each year from one of three credit reporting agencies. These agencies include Equifax, TransUnion or Experian.

Make a good effort to build business credit

Now that you know where you stand as far as your credit is concerned, you'll want to build your business credit to get the best deals on credit cards possible. Building your credit is complicated and based on multiple factors, which is why there are companies who charge fees to do this for you. However, most credit gurus advise against this route, as with a little effort you can see the same results building credit on your own.

I recommend: All Business has an in-depth article that focuses on ways to increase and build your corporate credit. It also has an article that explains What Is Business Credit that will help further your understanding of the basics. Eliminate-Credit-Card-Debt-Now.com features a step-by-step guide that will lead your business to a better credit standing.

Find business credit cards with no personal guarantee

Business credit cards with no personal guarantee mean that if something were to ever happen to your sole proprietorship or LLC, that you would not be personally liable for the credit debts incurred by the company. These are the best types of credit cards to have, as your financial security and that of your family is protected, however they are the hardest to get approved for.

I recommend: Nevada Corporate Headquarters offers a directory of reliable business cards with no personal guarantee. CreditCards.com offers a comprehensive comparison of several different business credit cards, so you can learn the differences between cards and get a better understanding of business credit basics.

Helpful advice for making the most of this Guide

• •  When considering business credit providers, make sure you attempt to negotiate terms. Although, the market for credit is pretty inflexible right now, it never hurts to try to negotiate a lower rate and you could end up with a better deal.

Action Steps
The best contacts and resources to help you get it done

Learn what business credit providers are looking for in borrowers

To obtain corporate credit, a business must prove it is credit worthy. Do this in several ways. Learn to write a business plan and use this to show how funds borrowed will be in use.

I recommend: Seek out professionals to write a business plan or train an employee to do so. Entrepreneur Media offers a full systematic plan to writing a business plan. Many business schools teach business professionals how to write business plans. The University of Missouri offers some information online and offers a seminar on business plan writing. This can help even new businesses to build business credit.

Get business credit information from key sources

Building corporate credit is important for any business. Those who need a small business loan to obtain equipment or real estate may wish to turn to top providers to learn their requirements and the method of obtaining this type of credit.

I recommend: Work through the Small Business Administration for small business loans and lines of credit. This organization provides training and education on loan applications on its website. Private organizations may also be an option for a business looking to learn how to improve its creditworthiness. Small business consulting services, such as those offered by credit expert John Ulzheimer, may provide a business with the training and resources they need to improve creditworthiness. It can enable them to build corporate credit.

Find options for business credit cards

Part of the process of learning about business credit is to compare the options available. A business credit line is available as a revolving line of credit to be in use for expenses, purchases, cash flow or any other need. Learn about the options a business has for such credit lines.

I recommend: Compare a corporate credit line carefully. Look at several lenders to learn what options are available. Organizations like Credit Cards provide individuals with the ability to compare several business lines of credit easily. AllBusiness provides information and education on how to choose a line of credit.

Helpful advice for making the most of this Guide

• •  Business credit reports are an important part of qualifying for a business credit card or line of credit. Each of the credit bureaus will provide a company with a copy of its credit report, usually for a fee. Check it to ensure no errors are present causing a drop in creditworthiness.

Action Steps
The best contacts and resources to help you get it done

D&B Rating

The D&B rating of any business is a rate given to the company by Dun and Bradstreet. It is commonly used to assess the creditworthiness of a business. The number is similar to a personal credit score.

I recommend: Dun & Bradstreet provides more information about the rating, how it is calculated and the terms associated with the rating.

Commercial account receivable factoring

Commercial account receivable factoring is the process of using a business' accounts receivable as a source of immediate cash. Third party providers offer these loans secured by the company's incoming receivables, allowing the business to have immediate access to cash.

I recommend: BusinessFinance provides more information on commercial account receivable factoring including why it is beneficial and how it is obtained.

Loan guaranty, SBA loan guaranty

A loan guaranty is a promise to repay a loan. An SBA loan guaranty is a promise made by the U.S. Small Business Administration to back up the loans of those small businesses it works with. The government guaranties a percentage of the borrowed funds, which reduces the rights associated with lending to the businesses.

I recommend: AllBusiness provides more information on loan guaranty and the SBA loan guaranty program.

Debt financing

Debt financing is a type of loan in which a business sells its bonds, mortgages or notes. These are short- or long-term loans.

I recommend: WomanOwned provides more information on debt financing.

Equity financing

Equity financing is a type of loan given to a business by investors who may be willing to take on more risk, such as venture capitalists. It is a type of loan that gives the investor a stake in the business.

I recommend: The Small Business Administration offers additional information on equity financing.

Basic 7(a) Loan Program

The Basic 7(a) Loan Program is a guaranty offered through the U.S. Small Business Administration. It is one way that many existing and start-up businesses may obtain financing when they otherwise would be unable to do so.

I recommend: SmallBusiness offers more information on the Basic 7(a) Loan Program.