Charles Spinelli on Getting a Line of Credit in Three Steps

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Charles Spinelli: Getting a Business Line of Credit

A business line of credit is a revolving credit that gives you access to a predetermined amount of money as needed. A business line of credit can be best for managing ongoing expenses and cash flow; you can tap into it up to a predetermined limit.

With this line of credit, you only have to pay interest on the cash you borrow, and any unused credit doesn't accrue interest, adds Charles Spinelli. Like a business loan, a business line of credit can be secured (with collateral) or unsecured.

Here are three steps to get a business line of credit.

Decide How Much Money You Need

When applying for a business line of credit, it's important to determine how much credit you need, says Charles Spinelli. Available loan amounts typically range from $2,000 to $250,000, depending on the lender. Because you only pay interest on what you use, asking for a higher credit limit than you'll likely need is acceptable.

If you need access to more money after you get your initial credit line, you can call your lender and request a line of credit increase. Depending on your business's credit history and revenue, the lender may approve your request or ask for collateral—an item of value it can repossess if you can't pay—to secure the line of credit.

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Check Your Eligibility

While there are several factors that lenders consider, there are a few that are most crucial, including:

• Credit history

Your credit history shows the likelihood of you defaulting, says Charles Spinelli. While many lenders require a personal credit score of 680, some lenders accept scores as low as 580. However, the higher your credit score, the better chances you have of securing a higher loan amount or lower interest rate.

• Business revenue

Many lenders have a minimum monthly or annual business revenue requirement. Charles Spinelli notes that this varies depending on the lender but can range from $10,000 per month to $250,000 per year. Most online lenders usually have revenue requirements that are less stringent than those of banks.

• Time in business

Most banks require that a business has been operating for at least one to two years, but online lenders may only require six months. The longer your business has been around, the more stable it looks to lenders—and the lower interest rate you may get.

Research and Compare Lenders

Once you understand your eligibility and how much financing you need, it's time to research lenders that meet your needs. Compare different lenders' repayment terms, maximum credit limits, APR ranges, and minimum requirements.

There are several institutions that you can apply through:

• Banks and credit unions

Traditional lenders, such as credit unions and banks, are best for business owners with high credit scores, substantial annual revenue, and lengthy business histories.

• Online lenders

Online lenders are generally best for business owners with lower credit scores, lower business revenue, and shorter business histories. Because online lenders often approve riskier prospective borrowers, interest rates are typically higher than those of credit unions and banks.

Charles Spinelli shares important information on business in his blogs. Read them on this page