Current business line of credit rates
|Lender Type||Interest Rates||Fees||Secured or Unsecured||Term||Credit limit|
|SBA lines of credit||As low as Prime Rate + 1.25%||Origination fees apply||May be secured depending on the loan amount and lender||Up to 10 years||Up to $5 million|
|Traditional banks (Bank of America, Capital One, Chase, Wells Fargo)||As low as 7.00%||Origination fees and annual fees||Secured and unsecured available||Up to five years||Up to $500,000|
|Online lenders (Kabbage, OnDeck)||13.99% to 90%||Origination fees and monthly fees||Secured and unsecured available||Six to 18 months||Up to $250,000|
As of August 2019, the previous rates apply for business lines of credit.
If you’re a small business owner, you know how essential it is to have enough capital to meet your company’s demand. However, financial issues are frustratingly common. According to the Federal Reserve Bank of New York’s Small Business Credit Survey, nearly two-thirds of small business owners reported having financial challenges during the past year.
Applying for a business line of credit can be a smart solution to your problem. With this approach, you get access to a revolving line of credit that you can use to buy inventory, purchase new equipment, or increase your cash flow.
However, it’s important to know that interest rates can vary widely on business lines of credit. It’s a good idea to do your homework on your needs and what rates lenders are offering so you can select the most affordable option for you.
What is a business line of credit?
Unlike a business loan — which gives you access to a lump-sum amount of cash — a business line of credit is a form of revolving credit, like a credit card. A business line of credit gives you continued flexibility to take advantage of opportunities as they pop up, since you can borrow the money you need over and over again.
Business lines of credit tend to have lower interest rates than that of a credit card, making it a more cost-effective financing method.
You only pay interest on the amount you actually use, but business lines of credit tend to have annual fees, origination fees, or monthly maintenance fees. They’re offered by banks, online lenders, and through lenders backed by the Small Business Administration (SBA). Business lines of credit can be unsecured or secured, so make sure you read the fine print before you apply.
What determines business lines of credit interest rates?
While there is a typical range of interest rates, each lender will have their own underwriting criteria for business lines of credit. Lenders will review your application and look at the following seven factors when determining your rate:
1. Business finances
Lenders want to see that you’re running a viable business, and will review your company’s finances before making a decision and determining your interest rate. They will look to see if your business is profitable and what your annual revenues are. The better off your business is, the lower the interest rate will be on your line of credit.
2. Market Prime Rate
Many lenders use the Market Prime Rate to determine their interest rates on business loans. A Prime Rate is what lenders charge customers with excellent credit. It serves as a baseline for lenders. The bigger the risk you pose as a borrower, the farther away you’ll get from the Prime Rate.
As of August 22, 2019, the U.S. Prime Rate is 5.25%, but that number can fluctuate over time.
3. Personal credit score
Even though you’re applying for a business line of credit, lenders will review your personal credit score. Your credit score is a number between 300 and 850. According to Experian — one of the three major credit bureaus — a credit score of 700 or above is generally considered good and will help you snag the lowest interest rates on a loan.
If your credit score is only fair or poor, lenders will view you as a risky borrower. If you qualify for a line of credit, you may have to settle for one with a very high interest rate.
4. Business credit score
Along with your personal credit score, lenders will also look at your business credit score. Your business’ credit score is a number ranging from 0 to 100 that ranks the creditworthiness of your company. If you have a score of 80 or higher, your score is considered good, and you’re more likely to qualify for a loan and get a competitive interest rate.
5. Financing speed
There are low-interest business lines of credit available. However, the process to apply for one and get approved can take weeks or even months. If you need money fast, you may not have the time to wait that long. If that’s the case, you’ll likely need to turn to an online lender that offers rapid approvals and quick loan disbursement. While you’ll get the funding you need quickly, you’ll pay a premium for that convenience.
What industry your business in can affect what rates you qualify for. If businesses in your industry tend to struggle or even fail, you’ll have a tougher time finding a loan with competitive interest rates because you pose more of a risk to the lender. For example, construction businesses, restaurants, and bakeries have very high failure rates, and businesses in those fields often struggle to find funding.
How long your business has been in operation can have a big impact on what interest rates you’ll receive. If your business is new, you’ll likely face challenges finding funding. Many lenders require you to have been in operation for at least two years to qualify for a loan. Lenders willing to work with young startups often charge much higher rates to compensate them for the extra risk.
Business line of credit rates with 7 common lenders
If you’re ready to apply for a business line of credit, it’s a good idea to shop around to get the lowest rates and the best terms for your needs. Below are seven popular options for business lines of credit, along with the rates and fees they generally charge.
Small Business Administration business line of credit rates
The Small Business Administration (SBA) offers four distinct options under its CAPLines program:
- Contract Loan
- Seasonal Line of Credit
- Builders Line
- Working Capital Line of Credit
Through the CAPLines program, you can borrow up to $5 million to meet your short-term business and cyclical working capital needs and have a term as long as 10 years.
Interest rates on SBA lines of credit tend to be quite low. For example, Wells Fargo offers lines of credit backed by the SBA with rates as low as the Prime + 1.75%. However, the application process can be rigorous the SBA has strict qualification requirements.
Personal guarantees are required from each owner holding 20 percent or more of the business, and you’ll need to have good to excellent personal credit, as well. Only for-profit business are eligible; non-profit organizations and religious institutions do not qualify.
Business line of credit: Bank of America
With Bank of America, you could qualify for a business line of credit with an interest rate as low as 7.00%. You credit limit will be between $10,000 and $100,000, and you can get unsecured business lines without having to use any property as collateral.
There is a $150 origination fee if you’re approved, but the fee is reduced to $50 for a limited time. And, to qualify for a loan, you need to have a personal credit score of at least 670, be in business for at least two years, and have at least $100,000 in annual revenue.
While Bank of America offers lines of credit with low rates, you should know that it can take a while to get the funding. According to the company, funds are generally available within 10 business days after approval.
Capital One business line of credit
With Capital One, you can get a business line of credit starting at $10,000. If you apply for a business line of credit for under $50,000, you don’t have to provide a financial statement as part of your application.
The bank doesn’t publicly list its rates, so you’ll have to contact a Capital One banker directly for more information.
To qualify, you need to be in business for at least two years and have an open business checking account.
Business line of credit: Chase
If you need access to short-term cash, to purchase new inventory, or to pay suppliers, Chase offers credit limits ranging from $10,000 to $500,000.
With Chase, you get a renewable five-year revolving term, giving you the flexibility to handle your business’ needs. You’ll only pay interest on the money you actually use, and you can choose a monthly payment that works for your cash flow trends.
Chase business lines of credit do have an annual fee. However, Chase will waive the fee if your average credit utilization is 40% or higher.
The interest rate you’ll receive is dependent on several factors, including your banking relationship with Chase, your credit history, and what collateral you have.
Kabbage credit line review
Kabbage is one of the biggest online lenders for businesses. If you need money fast, you can get approved for a business line of credit from Kabbage in as little as 10 minutes. And, Kabbage lines of credit are unsecured, so you don’t have to put up any property or part of your business up as collateral.
You can borrow up to $250,000, but you should be aware that Kabbage has very short loan terms; your loan will have a term of six, 12, or 18 months.
If you’ve only been in business for a short while, Kabbage can be a smart option. To qualify for a business line of credit, you need to have been in business for just 12 months and it needs to have at least $50,000 in annual revenue or $4,200 per month over the past three months.
Because Kabbage allows you to get quick access to cash, it charges very high interest rates. Its fees equate to an APR between 20% and 90%.
Business line of credit: OnDeck
OnDeck offers business lines of credit ranging from $6,000 to $100,000. Businesses with the strongest creditworthiness and cash flows could qualify for rates as low as 13.99% APR. However, according to OnDeck’s most recent quarterly report, APRs on lines of credit typically ranged between 19.9% and 61.9%.
OnDeck is a good choice if you have less-than-perfect credit. The minimum credit score to qualify for a business line of credit is just 600. However, OnDeck loans do have a one-time origination fee and a $20 monthly maintenance fee.
Business line of credit: Wells Fargo
Wells Fargo offers business lines of credit ranging from $5,000 to $100,000. There’s no collateral required, and the lender will even waive your annual fee for the first year. After that, you’ll pay $95 for lines of credit of $25,000 or less or $175 for lines of credit of $100,000 or less
Rates can be quite competitive. Wells Fargo offers rates as low as the Prime Rate plus 1.75%. As of August 23, 2019, that means your rate could be as low as 7.00%.
To qualify, your company should be at least two years old. All business owners that hold 25% or more ownership in the company must provide a personal guarantee.
Getting financing for your business
If you’re struggling to grow your business, applying for a business line of credit can help you get the funding you need to succeed.
However, it’s easy to get overwhelmed by the lending process. If you need help, you can sign up with Nav to get customized financial recommendations for your business. Nav sorts through all of the business financing options available, showing you the best ones for you based on your credit and business profile.