Business Equity Line of Credit

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on November 26, 2023

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What Is a Business Equity Line of Credit?

A Business Equity Line of Credit (BELOC) is a financing option for businesses that allows them to borrow money based on the equity in their commercial real estate.

A business equity line of credit allows a business to leverage the equity of their commercial or residential real estate for a revolving line of credit.

These lines of credit have terms ranging from 12 to 180 months, making them useful for both short and long-term financing.

Much like a home equity line of credit, a BELOC provides a credit limit that the business can borrow against, as and when required, rather than receiving a lump sum at once.

A BELOC is a vital financial tool for businesses, offering flexibility and liquidity to meet a wide range of needs, such as inventory procurement, equipment purchases, operational expenses, expansion initiatives, or unforeseen financial demands.

It provides businesses with access to funds based on the value of their equity, thereby utilizing an existing asset for financial gains.

Eligibility and Requirements for a Business Equity Line of Credit

Business Ownership and Equity Requirements

To qualify for a BELOC, a business must own commercial real estate and have a considerable amount of equity in it.

Equity is the difference between the market value of the property and any outstanding debts or liens against it. The greater the equity, the larger the potential line of credit.

Minimum Credit Score and Financial Stability

A minimum credit score is often required to qualify for a BELOC. While requirements may vary by lender, businesses with higher credit scores generally receive more favorable terms.

Additionally, lenders consider the financial stability of the business, evaluating profitability, cash flow, and debt-to-income ratios to ensure the business can manage the additional debt.

Collateral and Documentation Needed

The commercial property serves as the collateral for the BELOC, which means the lender can seize the property if the business fails to repay the borrowed amount.

The required documentation usually includes financial statements, tax returns, lease agreements, and property-related documents, among others.

Loan-to-Value (LTV) Ratio Considerations

The Loan-to-Value (LTV) ratio is a critical factor in determining the maximum credit limit of a BELOC. It is the proportion of the property's value that is financed through debt. A lower LTV ratio is generally more favorable and represents less risk to the lender.


Advantages of a Business Equity Line of Credit

Flexibility in Borrowing

One of the key advantages of a BELOC is its flexibility. Businesses can draw from the line of credit whenever necessary, making it a valuable tool for managing unpredictable or seasonal cash flow needs.

Lower Interest Rates Compared to Traditional Loans

BELOCs typically offer lower interest rates than unsecured business loans, as the line of credit is secured against commercial property. This cost-effectiveness makes BELOCs an attractive financing option for businesses.

Ability to Access Funds When Needed

With a BELOC, businesses have immediate access to funds, providing a safety net for unforeseen expenses or new investment opportunities. It essentially offers a reservoir of funds that the business can tap into as needed.

Potential Tax Benefits

Interest payments on a BELOC might be tax-deductible, provided the borrowed funds are used for business purposes. Businesses should consult with a tax advisor to understand how these potential tax benefits might apply to them.

Risks of a Business Equity Line of Credit

Potential Impact on Credit Score

Applying for a BELOC will likely involve a hard credit check, which might cause a temporary dip in the business's credit score. Additionally, how the business manages its BELOC can also affect its credit score.

Variable Interest Rates and Market Fluctuations

BELOCs typically have variable interest rates that fluctuate with market conditions. Therefore, if rates increase, so too will the interest costs of the BELOC, potentially straining the business's finances.


The convenience and accessibility of a BELOC might lead to overborrowing. Drawing too much from the line of credit can lead to significant debt, which could burden the business and potentially risk the commercial property used as collateral.

Defaulting on Payments

If a business defaults on its BELOC repayments, the lender can seize the commercial property used as collateral. The property could then be sold to recoup the owed funds, which could disrupt the business operations and potentially lead to its closure.


Application Process for a Business Equity Line of Credit

Researching and Choosing a Lender

Choosing the right lender is an important first step in the application process for a BELOC. Businesses should research various lenders, consider their terms and conditions, interest rates, and reputation in the market.

Preparing the Necessary Documents

After selecting a lender, the business must gather and prepare the necessary documentation. This might include financial statements, tax returns, documents related to the commercial property, and other pertinent records.

Submitting the Application

Once all documentation is prepared, the business submits the application. This can often be done online, although some lenders might require a physical submission or a meeting with a loan officer.

Underwriting and Approval Process

Upon submission, the application undergoes an underwriting process, where the lender reviews the provided documents, verifies the information, and assesses the creditworthiness of the business.

If the application is approved, the lender will provide the terms of the BELOC, including the credit limit and interest rate.

Managing a Business Equity Line of Credit

Drawing Funds from the Line of Credit

A business can draw funds from its BELOC as needed, up to the established credit limit. This can often be done via online banking, writing a check, or using a special credit card provided by the lender.

Repayment Options and Terms

The repayment terms of a BELOC typically involve a draw period, during which the business can borrow from the line of credit, and a repayment period, during which borrowed funds must be repaid.

Businesses should understand these terms, including the minimum payments required and the implications of early repayment.

Monitoring and Controlling Interest Costs

Monitoring a BELOC carefully helps to control interest costs. Because interest only applies to the borrowed amount, businesses can minimize interest costs by borrowing only what they need and repaying it as quickly as possible.


A Business Equity Line of Credit is a flexible and potentially cost-effective financing option that allows businesses to borrow against the equity in their commercial property. It serves as a financial safety net that businesses can draw from as needed.

Eligibility for a BELOC is based on the business's equity in commercial real estate, credit score, financial stability, and other factors. A thorough understanding of these requirements is crucial for businesses considering a BELOC.

While a BELOC offers several advantages like flexibility, accessibility of funds, lower interest rates, and potential tax benefits, it also carries risks including potential impacts on credit scores, variable interest rates, the danger of overborrowing, and the severe consequences of default.

Business Equity Line of Credit FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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