Key takeaways

  • Traditional and online lenders offer small business lines of credit
  • Traditional lenders are best for established businesses with good-to-excellent credit
  • Online lenders are best for businesses that can't get funding from a traditional lender

A business line of credit can be a helpful funding tool for small businesses. It essentially works like a credit card: You can use money up to your limit and then continue to use those funds after you pay them back.

If you feel like a business line of credit is the right funding option for your business, it’s time to look for line of credit lenders. You can get a business line of credit through both traditional and online lenders.

Traditional lenders

Traditional lenders, meaning banks and credit unions, often offer a business line of credit option to customers. If you’re interested in working with a traditional lender, it’s a good idea to research and talk with multiple lenders because you can find different options at each. Many offer multiple business lines of credit, including both secured and unsecured options.

There are larger traditional lending institutions — like Bank of America and Wells Fargo — and regional or local banks and credit unions.

While more businesses tend to apply at larger banks, they have a lower approval rate for small business loan applications than small banks. According to the 2022 Small Business Credit Survey, 43 percent of applicants applied at large banks, while only 30 percent applied at small banks. Of these applications, small banks partially approved 82 percent of applicants, while large banks only partially approved 68 percent.

Bankrate insight
Like other types of SBA 7(a) loans, SBA CAPLines are secured through a traditional lender and offer a line of credit of up to $5 million for working capital, contracts, builders or seasonal expenses. Note these lines come with the fees, including a guarantee fee, but they don’t require a down payment. 

Traditional lender pros

  • Can visit physical locations: Most banks and credit unions have at least one branch you can visit in person. This gives you a more personalized customer service experience and a central location for all of your business banking.
  • Lower interest rates: Traditional lenders often have interest rates that start lower than alternative or online lenders.

Traditional lender cons

  • Lower approval rates: Approval rates are more favorable for online lenders. Additionally, their qualification requirements tend to be more strict
  • Less convenient: Some traditional lenders have online options available for loan applications and management, but they don’t all have this. If online options aren’t available, you’ll have to visit during business hours.

Who it’s best for

Traditional lenders are best for established business owners with good-to-excellent credit who prefer an in-person experience and can visit within branch business hours.

Online lenders

Traditional lenders aren’t the only lending option for securing a business line of credit. Online lenders can have less stringent requirements — like minimum credit scores in the mid-500s to low 600s — and may offer shorter, more flexible terms than traditional lenders. They also have higher approval rates. The  2022 Small Business Credit Survey found that online lenders partially approved 71 percent of small business loan applications.  

Online lender pros

  • Convenient: Everything you need to do to apply for and manage your business loan can be done on your computer or phone.
  • More options available: Without the restriction of location, you can find many different lenders online. Loan sizes and types range quite extensively, as well—find loans for amounts as low as $3,000 and as high as $500,000 (or more in some cases).
  • Higher approval rates: As discussed above, approval rates are significantly higher for loans from alternative lenders. Many work with newer, smaller businesses with lower credit scores that traditional lenders would reject.

Online lender cons

  • Less-personal experience: With alternative lenders, you don’t usually have the option of visiting an in-person branch. Additionally, many aspects of the lending process are automated, so you’re not interacting with actual people much.
  • Need to be electronically savvy: While online lenders work to make the experience convenient for customers, you’ll need to upload documents digitally and communicate online. If you have trouble with technology, this option can be more difficult.
  • Higher interest rates: Online lenders offset the risks they take by charging higher interest rates and fees, like prepayment penalties.

Who it’s best for

Online lenders are best for tech-savvy businesses looking at every option and businesses that have been denied loans by traditional lenders (as online lenders have higher approval rates).

Where’s the best place to get a business line of credit?

Ultimately, the best place to get a business line of credit differs for each business. Examine your needs to determine if a traditional lender or alternative lender is better for you. Think about what you need the funds for, how much money you need and your business’s qualifications to find a lender that gives you the highest probability of approval.

Once you decide on a type of lender, compare several lenders’ different rates and terms. Check their credit score and other requirements to analyze how you measure up. Based on these elements, choose a lender with a business line of credit your business qualifies for and will likely give the best terms out of all your options.

Bankrate insight
There are always other financing options beyond a business line of credit, including:

The bottom line

A business line of credit is a convenient way to cover everyday expenses and working capital needs. Choosing a lender type gets you one step closer to selecting the perfect lender. Once you decide on your lender type, you can look into specific options from different lenders to find the best option for your business.

Frequently asked questions

  • Yes, a small business can get a line of credit from a traditional or online lender.

  • It’s possible to get a business line of credit with a credit score in the mid-500s with an online lender, but you may have a lower credit limit and a higher interest rate than a business with a higher credit score and through a traditional lender.

  • A business’s ability to get a business line of credit depends on several different factors, including the age of the business, annual revenue and credit score. Before applying, review your business’s qualifications to confirm they meet the lender’s requirements.