Best Business Line of Credit for a New Business
Having a business line of credit gives you immediate access to the cash you need for whatever comes your way. A line of credit works much like a credit card, except the limits can be much larger with lower interest rates. With a revolving line of credit, you can also replenish your limit after paying back portions of what you’ve already borrowed, providing business owners with an incredibly flexible financing option. In short, this gives your business access to the funding you need, when you need it, with lower interest payments than you would have from taking out a loan.
As a new business owner, you likely have questions, such as:
Can you get a line of credit to start a business?
How do I build credit for a new business?
How can I qualify for a business line of credit?
Depending on the stage of growth your business is in, it can be challenging to apply for a line of credit. However, if you meet certain qualifications as a new or relatively young business, a line of credit can be an effective financing solution.
How To Get a Business Line of Credit for a New Business
Getting a business line of credit for a new business can be as easy as filling out an online application and waiting 24 hours for a decision, or it can be a painstaking process. It all depends on your eligibility and how likely lenders are to see your business as a stable investment.
Your business’s eligibility for a line of credit typically relies on three qualifications:
How long you’ve been in business
Your business credit score
Your annual revenue
How Long Do You Need To Be in Business To Get a Line of Credit?
A business is usually considered a “new business” until it is at least three to five years old. Within this time period, there are different stages that will affect your eligibility. Most banks won’t approve businesses for a line of credit unless they’ve been operating for at least two years, for example.
For businesses that are between six months and one year old, there may be opportunities with online lenders. Alternative lenders like Backd provide financing solutions for businesses that have been around for at least one year.
It’s possible to get a business line of credit after being in business for six months, but you also need time to build your business credit score, which can take up to three years. Applying for a line of credit while you’ve been in business for less than a year or have a low credit score will also leave you paying a higher interest rate.
What’s Your Business Credit Score?
How long you’ve been in business isn’t all you’ll need to show to a lender. You’ll also need to prove that you can manage debt and pay back what you’ve borrowed. That’s where your business credit score comes in. Two major credit reporting agencies that you should be aware of are Experian and FICO.
Experian provides a score from 1 to 100 and includes a report of your credit history. What is a good Experian business credit score? A business credit score of 80-100 is considered low risk, 50-79 is medium risk, and 1-49 is high risk. On the other hand, FICO provides a flat score without being accompanied by a detailed report. It’s typically best to have a FICO score of at least 600 when applying for a business line of credit. In the early days of business, you won’t have a business credit score, so you may have to rely on your personal credit score to apply for financing solutions.
What’s Your Annual Revenue?
It can be possible to qualify for a line of credit with an annual revenue of $100,000, but you’ll have more options if you earn at least $300,000 per year. As your annual revenue increases, you’ll be able to qualify for lines of credit with higher limits and lower interest rates.
To see how straightforward applying for a business line of credit can be, take a look at Backd’s click-through application process:
Being in business for at least one year
Having a FICO credit score of at least 600
Earning at least $300,000 a year
Being located in the US
Visit backd.com and click Apply Now.
Select line of credit.
Enter how much funding you’ll need (between $10,000 and $750,000) and what you need the funding for. This limit is revolving, so as you pay back what you’ve borrowed, you can withdraw up to your maximum limit again.
Submit personal and business details along with financial documents.
Receive a decision in 24 hours or less. Most applications through other line of credit providers can take several days to process, while it may take up to several months to get a decision on a small business loan.
Is It Hard To Get a Line of Credit for a New Business?
Your chances of getting a line of credit to start a business are low, but as your new business grows over a year or two, qualifying becomes easier. To qualify for a business line of credit, and to qualify for the best terms, work to improve your:
Credit Score: Leveraging your personal credit score to take out a business credit can start the process of building your business credit score. Don’t borrow too much in an attempt to quickly build your score, though. The fastest way to build business credit is often by borrowing small amounts and making consistent payments to increase your score over time rather than risk not being able to pay back a large amount.
Annual Revenue: As your business grows, keep in mind that it’s your revenue, not your profit, that qualifies you for a line of credit. Even if you operate on small margins, you can still leverage this financing option if you have enough sales.
Time in Business: You can’t do anything to accelerate how long you’ve been in business, but by improving your credit score and revenue, you can access a line of credit earlier in your business journey.
How Do I Get a Line of Credit with a New LLC?
You can qualify for a line of credit for your growing LLC by following these steps:
Legally establish your business as a limited liability company (LLC).
Obtain an Employer Identification Number (EIN), which serves as your Federal Tax ID.
Establish business contact information that is different from your personal phone number, email, etc.
Open a business bank account.
Take out business credit cards to start building your business credit score.
Finance your growth for the first 6-12 months with business loans, investors, savings, and other funding options.
Reach a minimum of $100,000 in annual revenue or $300,000 for more favorable borrowing terms.
Pay off your debts consistently and on time to build your FICO credit score to at least 600.
Apply for a business line of credit through Backd or another trusted lending institution.
Are Business Lines of Credit Unsecured?
Business lines of credit are typically unsecured, which means that as the borrower, you don’t have to put up collateral in case you don’t repay your debt. An unsecured business line of credit for a new business comes with a higher interest rate because the lender is taking on more risk. These rates can become prohibitively high for businesses that are less than a year old or that have a low credit score. In these cases, it may be necessary to take out a secured line of credit that uses your assets as collateral until your business grows more.
How Do Brand New Businesses Get Business Credit?
Businesses often rely on their founder’s personal credit score to start building their credit. For example, if you were to register an LLC, you could then apply for a business credit card using your personal credit score to qualify. What credit score does a business start with? New businesses typically start with a low credit score—in the 1-49 range for Experian. In addition to taking out a credit card, here are more ways that businesses can start building their credit:
Service Credit: You can put the services your business needs to run—like your internet and phone bills—on credit.
Supplier Credit: You can receive goods from suppliers and pay for them later, which gives you time to make sales and establish cash flow.
Retail Credit: If you shop consistently at the same retail store for certain supplies, you can apply for a store-specific credit card to build your credit and reap additional rewards.
Some lending options can harm your credit in the short-term (before you start making payments). Backd only does soft credit pulls, so your score isn’t affected by applying for a line of credit.
Benefits of an Instant Business Line of Credit
The best business line of credit for startups is one that gets you the money you need when you need it. Revolving lines of credit keep cash accessible as long as you pay back what you borrow. That way, you can respond to your business’s opportunities and challenges before they pass you by or cause lasting damage. With Backd, applying for a line of credit is easy. If you qualify, you gain instant access to cash for whatever your business needs. If your business could benefit from being more responsive, apply today. All you need to qualify is:
A minimum of 1 year in business
A FICO credit score of at least 600
A minimum yearly revenue of at least $300,000
To be a US-based business
Applying takes less than 3 minutes, and you’ll receive a decision within 24 hours.