You’ve compared different types of lending options. You want the benefit and flexibility of a small company credit line. You’re almost ready to apply, but you need one piece of crucial information: just how much is that this likely to set you back?
While you won’t know for sure before you finally get an offer from the lender, it is possible to get a general sense of the rates you’ll encounter. Remember that there'll always be outliers; lenders offering rates better or worse than the average.
Below, we’ll take a look at a few of the small company line of credit rates offered by popular online lenders. We’ll also check out how lenders arrive at their rates and what you can do to increase your chances of getting a great one.
Current Rates For Popular Business Lines Of Credit
Here are the current business credit line rates for many popular lenders:
*Note, being an aggregator Lendio’s rates can vary in line with the lender you're matched with.
Note that although this is an example of the rates you might receive, business credit line rates can differ enormously; even two different LOCs provided by the same lender may fall inside a huge range. Still, it can be useful to know about how much you may be charged.
Making matters even more complicated, most financiers (those who do disclose their rates at all) don’t always employ exactly the same measurements. Interest rates might be listed annually or monthly. You might be quoted an issue rate instead of an interest rate. To simplify things a little, we’ve listed the sample rates below in terms of APR. Note that an APR is not the same task being an interest rate. It’s a way of comparing the entire costs of borrowing between lenders.
How Lenders Determine Your Interest Rate
Before your application ever enters the picture, your lender factors the costs and income to determine the most favorable rates where they are able to lend. For banks, the dpi is known as the prime rate, that is based on the federal funds rate. In practice, you’re unlikely to be lent money at prime; bank rates usually start a percentage point or so above prime. Alternative lenders normally have eco-friendly seeking to earn profits by targeting higher-risk customers than banks, so their rates will almost always be greater than those of banks.
When are applying, your credit rating will usually play a very big role in determining what side of the interest rate range your offer falls on. The greater your credit, the better your rate (usually). For business lines of credit, they could be checking your company credit score instead of your personal score, though you’ll want to clarify that with them.
There are also factors your lender may use to find out your rate, what we should affectionately call “the 5 Cs of credit.” They’re attempting to assess:
- Your Character: An abstract sense of your reputation and trustworthiness. This may include your credit report, but potentially things like how long you’ve been around and private references.
- Your Capacity: Your capability to repay the loan. This might include looking at other debts you’re servicing and your business revenue.
- Your Capital: How much of your own money are you currently putting toward an investment that you’re seeking funding? This may take the type of a down payment.
- Your Collateral: Assets the lending company can seize in the event that you default. When it comes to secured credit lines, this may be a physical asset, your inventory, property, or perhaps a cash deposit. For unsecured loans, it may be a personal guarantee or a blanket lien.
- Conditions: These would be the prevailing winds affecting lending broadly; the state of the economy, the prime rate, economic forecasts for the type of business, and the competition faced by your business.
The good news is that many of these factors are things you can do something about. Take character, for instance. You could always work on fixing your credit, but that’s not the only way. Creating a good working relationship with a bank you ultimately want to give loan to you enables you to much more of a known quantity. Similarly, you can focus on your capacity by enhancing your debt-to-income ratio.
Where To obtain Business Lines Of Credit
Business lines of credit are a little less common than business term loans, but they aren’t exactly rare either. Many lenders that provide business loans offer business lines of credit.
Banks & Credit Unions
Almost all banks will offer you some form of line of credit, and most may have a minumum of one business line of credit product. Credit unions are not as likely to dabble running a business lending, but when you fit in with one, it’s worth asking. Expect an extended application and much more stringent requirements. The payoff is incorporated in the rates. If you have excellent credit, your rates of interest will come in just a few points over prime.
Online Lenders
Businesses with less-than-stellar credit, or that need to be approved inside a very short period of time, may want to consider an online lender. You’ll be checking out higher rates–8% if you’re really lucky, but double digits should be expected–but also a much more painless application generally.
Keep in mind, there’s a huge distinction between a reputable online lender and a predatory one, so your due diligence prior to signing your life away.
Small Business Administration (SBA)
The SBA doesn’t usually directly give loan to businesses; instead, it guarantees loans offered through lenders with which it has partnered. This guarantee helps businesses qualify for rates and amounts they otherwise wouldn’t.
The SBA offers four types of lines of credit through its CAPLines program: working capital, seasonal, contract, and builder’s. Each one has specific limitations on which they can be employed for and offer credit limits up to $5 million. With rates between 7.5 and 10%, they’re a pretty good deal too. Just don’t expect speed when you’re dealing with the SBA; time to funding usually can be measured in months.
Final Thoughts
Hopefully, you now have the better idea of the cost of a credit line. If you wish to find out more about the terms and procedures involved with credit lines, we can take you step-by-step through what business credit lines are and just how they work. Ready to apply? Check out our suggested line of credit lenders.
Go to our guide on best business line of credit options.
