How much can you borrow with a business line of credit?
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A business line of credit is a revolving form of debt that, unlike a term loan, doesn’t disperse all your funds at once. Instead, you can take out funds up to a certain limit as needed. You can pay down the debt and then borrow more money later if you’re still in the draw period.
Lenders set their maximum limits, but many offers top out at $500,000. The line of credit amount you’re approved for will vary depending on your business’s size, years in business, financial stability, credit score and other risk factors.
Read on to learn more about how to get a line of credit and how much you might get.
Business line of credit by lender type
Traditional lenders like banks and credit unions have long offered business lines of credit, but many online lenders now offer this type of credit too.
Traditional banks may offer superior terms and lower interest rates if you’ve been in business for at least two years. Alternative lenders often serve as a lifeline to startup businesses or people with credit problems. Online lenders may also offer faster turnaround times between application and approval than banks with busy underwriting teams.
The loan amount you’re approved for will probably fall between $5,000 and $500,000. Most lenders, both online and traditional, advertise lending amounts within this range. However, if you need more cash, you may be able to find it. PNC Bank offers a business line of credit with a potential limit of up to $3 million. Bank of America lines of credit begin at $25,000 but have no set-in-stone ceiling.
Meanwhile, online loan marketplace Lendio has a limit of $500,000 and accepts applications from companies with a credit score as low as 560. Some online lenders also offer funds for companies as young as six months in operation. One such lender, Credibly, caps lines at $300,00.
How big of a line of credit do you qualify for?
Like a term loan or credit card, lenders will evaluate whether you are low- or high-risk before they decide how much money to make available to you. Even though you may never use your full line of credit, your lender will want to make sure you can pay it back if you do.
Business lines of credit may be secured or unsecured. Secured loans require collateral, while unsecured lines of credit don’t. You may be able to get a higher amount if you offer more collateral.
Some factors your traditional or online lender will consider include:
- Your time in business
- Annual revenue
- Business credit score
- Personal credit score
- Your business industry
- Available collateral
- Recent balance sheets
- Recent profit and loss statements
- Your business plan
Lenders want signs your business is stable and profitable and thus unlikely to default. Most set minimum requirements for some of the above factors. Businesses with higher credit scores and revenues are more likely to be approved for a larger line of credit amount.
How to increase your line of credit limit
Some lenders will allow you to increase your existing business line of credit’s limit. Whether or not you’re eligible for an increase will depend on a few factors.
First, have you met the financial covenants in your original contract? Many lenders require you to meet certain benchmarks or comply with rules regarding owner compensation and business liquidity. Meeting these benchmarks may increase your chances of successfully increasing your available credit.
You may also help your chances of a credit line increase by:
- Establishing a positive repayment history with the lender, proving you can manage a line of credit well
- Proving an increased cash flow
- Proving an increased annual income
- Offering additional collateral against the line of credit
The bottom line
While lenders offer lines of credit as high as $3 million, most small businesses won’t qualify for such high limits. Your approved amount will depend on you and your business’s qualifications. You may get better terms by offering ample collateral and coming to the table with personal and business credit scores in the good to excellent range.