Startup Line of Credit: Options Before and After 6 Months

How a business line of credit works

You get a credit limit, draw against it when needed and pay interest or fees only on what you have drawn. As you repay, the limit becomes available again.

A line of credit fits needs that come and go: restocking inventory, covering payroll in a slow week, or paying a supplier before a customer pays you. Unlike a term loan, you do not receive the whole amount at once or pay for money sitting unused.

Key terms to compare:

• The credit limit and how it may grow
• Cost per draw, whether interest or a fee
• Repayment period for each draw
• Maintenance or inactivity fees
• Whether the line is secured and whether a personal guarantee applies

Our line of credit calculator shows what a draw costs over different repayment periods.

Why startups rarely qualify for a true line

A line is ongoing risk for the lender. Without months of bank statements showing steady revenue, most lenders will not extend a revolving limit to the business alone.

A term loan is one decision about one amount. A line of credit is a promise that you can keep borrowing, so the lender wants confidence the business will keep generating cash. Young companies cannot show that yet.

When a lender does offer a line to a startup, it usually rests on something else: the founder's strong personal credit, a cash deposit that secures the line, or personal assets. The guide to lines of credit for startups covers this in more detail.

Alternatives for businesses under 6 months old

Business credit cards, secured lines backed by a deposit, personal lines of credit and vendor trade terms are the most common substitutes.

• Business credit cards. A revolving limit approved mostly on personal credit. Useful for small expenses if you pay the balance quickly. Compare in line of credit vs. credit card.
• Secured lines. Some banks issue a line against a savings deposit or certificate. It builds history but ties up cash.
• Personal lines or home equity. Available to some founders, but they put personal assets at risk.
• Vendor terms. Net-30 or net-60 terms from suppliers act like short credit for inventory.

Each of these has limits and risks. Keep balances small and repay quickly while revenue is still uncertain.

When ROI Funder can help

ROI Funder places business lines of credit for companies with 6+ months in business, $20,000+ in monthly revenue and 500+ FICO. Lines typically fund in 24-72 hours.

To be explicit: a business that opened less than 6 months ago does not meet ROI Funder's minimum, and applying early will not change that. Once you cross 6 months with steady deposits of $20,000 or more each month, you can be considered for a business line of credit as well as working capital, term loans and other products.

Lines placed through ROI Funder are underwritten mainly on bank statements and credit. The application takes a few minutes and uses a soft credit pull.

Building toward your first line of credit

Run all revenue through one business account, avoid negative balances, use a business card lightly and pay it on time, and keep personal credit strong.

1. Open a business checking account and deposit every sale there.
2. Keep a cushion so the balance never dips below zero.
3. Use one business credit card for regular expenses and pay it in full.
4. Get an EIN and register the business properly.
5. Track monthly revenue so you know when you reach $20,000 a month.

Six clean months of statements often matter more than a perfect plan.

Comparing a card, a secured line and a business line

Cards and secured lines work for very new companies but come with limits. A business line of credit offers more flexibility once the company has revenue history.

A business credit card is easy to get on personal credit and convenient for purchases, but it is built for spending, not for moving cash, and carried balances get expensive. A secured line backed by a deposit is low risk for the bank and helps build history, but it ties up money you could use elsewhere.

A true business line of credit, underwritten on your bank statements, lets you move cash into your account for payroll, rent or inventory and pay it back on a set schedule. It becomes realistic once the business has a few months of steady deposits. That is why the first 6 months matter so much: they turn a founder's credit story into a business cash flow story.

Using a line wisely once you have one

Use a line for short, self-repaying needs. Avoid using it to fund long-term projects or ongoing losses.

Illustrative example: a retailer draws $15,000 to buy holiday inventory, sells it over six weeks and repays the draw from those sales. The cost is limited to six weeks, and the limit is free again for the next season. Drawing the same $15,000 to cover rent month after month, with no change in sales, just builds a balance that never comes down.

A simple rule: each draw should have a clear source of repayment.