If you’re a small business owner at some point you’ve probably considered a line of credit. With a quick online search many results return, from traditional banks, to newer online only options like Fundbox, Kabbage, OnDeck, and Bluevine, among others. In this article we compare these online lenders to help you decide once you’re ready to apply. Making a choice can be confusing because they might look similar at the outset, but when you check more closely, the differences can be huge.
Before we get into the details, let’s start with a definition of a business line of credit. A line of credit is an amount of capital you can draw against—up to your credit limit—and repay over time. Most lines of credit are revolving, meaning that as you repay them, your available credit replenishes and you can draw against it repeatedly.
Note on COVID
We published this article in October, 2020, amidst the COVID-19 pandemic. Our research into companies reflects what we saw at that time.
Start with a few questions
As you start researching your business line of credit options, we recommend starting the process by asking yourself a few questions.
- Who is actively lending? This sounds like an obvious question, but since the pandemic struck, many lenders may look like they’re accepting new applications (their website is live with an active “apply now” button) but they’re actually not. Try to find out if they’re looking for new customers or not. Fundbox never stopped taking on new customers or originating loans to existing customers throughout the pandemic, but the economic slowdown has affected all lenders differently. Kabbage, on the other hand, stopped approving new customers back in March, 2020.
- How much do you really need? Your impulse might be to get as much money as possible. But you should be careful because if you’re approved for more than you actually need, you might end up having trouble repaying whatever you use. Plus, with a revolving credit, a smaller amount might fit your business well since you can reuse the credit as you repay and the available amount replenishes.
- How quickly do you need the money? Sometimes new business opportunities arise that require an immediate response; a new client calls with a fast deadline, or an old client has a last-minute request. If that happens, you might want to prioritize a lender with a streamlined application or a fast decision process so you can get an answer and confidently take on the new work if you’re approved.
Application process
Once you’ve answered the starting questions, we recommend you look into the application process for each line of credit before you begin.
- How long is the application? Try to estimate how long it will take you to complete the application so you set aside enough time.
- What information do they request? If they’re asking for your company’s federal tax ID, do you have that information handy? Many applications ask for personal details for each person who owns more than 25% of the business, to verify their identities. Additionally, most applications ask for a way to learn about your business’s performance, so they might ask you to connect your business bank account or accounting software.
- How long will they take to give you a credit decision? Just because the company’s credit application is online, doesn’t mean it will give you a result in seconds. Sometimes they can take hours, or even days. Fundbox’s application was optimized to give a fast decision—within minutes for most customers.
Qualification criteria
Each lender will have different minimum criteria they use when deciding which businesses to extend credit to. You should note that even if you meet the minimum criteria, you won’t necessarily get approved. Many lenders take a number of different factors into consideration when approving customers—the minimum criteria are just a few.
Take Fundbox, for example. While we have minimum requirements, a “typical” customer of ours has around $300,000 in annual revenue and has been in business for years, not months.
| Fundbox | BlueVine | OnDeck | Kabbage | |
|---|---|---|---|---|
| Minimum FICO | 550 | 650 | 600 | 560 |
| Years in business | 2-3 months | 3+ years | 1+ year | 1+ |
| Business revenue | No hard minimum | $40,000 monthly revenue | $100k annual revenue | $50,000 annual or $4200/month (for last 3 months) |
Customer experience
A business line of credit is a tool you might be using often, depending on your needs. We recommend you consider the product experience and availability of customer support before making a decision. Some companies have invested in design and have built a streamlined product. Others might not have. Design can affect the speed to which you can draw funds, and your general satisfaction with the product.
Likewise, customer support can be critical to your happiness with your business line of credit. Imagine if you had a question about the product, or a problem you needed to resolve but no one would pick up the phone? Fundbox won the gold Stevie Award for outstanding customer support in the financial services category, but not all companies have invested in the team and technology needed to deliver a great experience over the phone and email.
Terms
While possibly not at the top of each business’s list, terms are a key consideration when looking for a line of credit. Some companies specialize in longer payback periods while others ask to pay back quickly. Do you prefer monthly or weekly payments? Do you want to repay in 12, 24, or 52 weeks?
Customer reviews
While companies themselves can talk about a great experience or the awards they’ve won, a good indicator of the level of service they provide is the reviews their customers have written about them. Sites like Trustpilot or Better Business Bureau allow customers to post their reviews with comments so you can get a better sense for what they like and dislike about the company and its line of credit.
Company stability
In a world of economic uncertainty, we thought we should add a section on company stability. If you’re going to apply for a line of credit with a company, you should consider whether or not you think the company will be around for the long run.
A few questions to ask yourself as you do your research are:
- How did they handle the pandemic? Did they continue lending?
- Did they fundraise recently or do they have money in the bank to handle economic fluctuations?
- Were they acquired by another company?
Fundbox was fortunate to raise over $170 million in 2019, and we have kept the vast majority of that money in the bank to protect ourselves from the unexpected. We continued originating new loans throughout the pandemic, and continued taking on new customers during that time as well.
Apply to Fundbox
If you think Fundbox might be a good fit, you can apply any time. It only takes a few minutes and you can get a decision in minutes. Applying won’t affect your credit score.