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During the ups and downs of owning a business, there are times when you will need a reliable way to build more cash flow. One solution is to have a secured small business line of credit from a bank.

What is a secured business line of credit? It’s a flexible, revolving credit line that provides your business with working capital when you need it. When you don’t need to use the credit line, in most cases you don’t have to pay for it. Unlike an unsecured business line of credit, which many banks also offer, the secured line of credit provides access to more cash to address longer-term business needs.

A secured business line of credit can be a valuable financial tool, but getting one requires some preparation and commitment. Below are steps you should take in order to land the best credit line for your business:

Know Why You Need the Credit

This seems like a no-brainer, but give careful thought to why your company needs a secured business line of credit and whether that is the best financial instrument for you to use. Do you need the capital to get through a down cycle, or to expand your company? Do you need the cash immediately, or are you planning for future growth down the road?

The advantage of a secured line of credit is that it can provide access to hundreds of thousands of dollars in working capital through checks or company credit cards. However, you will need to “secure” that credit line with collateral like a blanket lien on general business assets or a certificate of deposit. Before you pursue this kind of financing, you’ll want to plan on how to use the money and how much you are willing to commit to secure it.

Have a Cash Flow Projection

Building a cash flow budget or forecast allows you to run your business more effectively and pinpoint times when you need an injection of cash. Doing this kind of disciplined analysis up-front will help identify how big a line of credit you should pursue and when you will need access to that cash.

Know If You Qualify for a Secured Line of Credit

Different banks have different requirements for extending lines of credit. You stand a better chance of being approved for a secured line of credit if you have been in business at least two years and have annual revenue of more than $200,000. Your personal credit score also typically needs to be 650 or higher.

Get Company and Personal Financials in Order

To apply for a secured line of credit, you will need to provide a bank with some basic business and personal information. These items may include:

  • How long you have been in business
  • Bank account information
  • Tax records
  • Personal information on all business owners
  • Number of employees
  • Net profit and gross revenue
  • Any outstanding debts and obligations
  • What expenses, equipment or real estate you plan to finance with the credit line

Define Your Terms

Before applying for a line of credit, have a specific interest rate in mind, as well as how much in collateral you are willing to commit. The interest rate on your secured line of credit will depend on your creditworthiness, the line amount and your company’s relationship with the bank. Just because a bank advertises “rates as low as 4.75%” does not mean you will get that rate, as that number depends on many different factors.

As with any important business relationship, you should shop around for the best partner. Different banks have different policies on rates, how much credit they will extend and what equity or collateral they require from a client.

Be Prepared to Wait

A secured business line of credit can be a difficult credit line to obtain, depending on your company’s history and creditworthiness. The process could take anywhere from three weeks to 60 days, as a bank builds a term sheet and runs your credit line past its underwriting committee. During this period, the deal could be amended or rejected at any time. As a result, the secured line of credit may not be the best option if your company needs quick access to cash. Other forms of financing like asset-based lending or factoring may be better, more immediate solutions.

Sources: Small Business Administration, U.S. Bank, Bank of America,, Wells Fargo

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