Earlier this month, the Federal Reserve released part of its annual small-business credit survey. This edition provided data on companies without employees, including those just starting out.

One thing that stood out: Business lines of credit are priorities for new businesses. Among the respondents who said they applied for a loan, line of credit or cash advance in the past 12 months, 42% of early-stage firms opted for a line of credit.

That was the highest percentage for any loan type among any group of businesses.

Business lines of credit are undoubtedly useful. So I talked to my colleagues Randa Kriss and Ryan Brady, who cover small-business lending, to find out when you should start looking for one — and when you should choose something else instead.

Prefer a video? Karrin Sehmbi, another member of the team, has you covered:

A line of credit is similar to a credit card. But instead of swiping your card to spend against your credit line, you can withdraw cash.

You spend that cash as you need it — on operating expenses, payroll or a big purchase. Then you pay back the amount you borrowed, plus interest.

Learn more: What’s the difference between a loan and a line of credit?

Do apply for a line of credit if your revenue comes in waves.

Lots of businesses are seasonal. A line of credit comes in handy there — you can draw on it when revenue is slow or as you invest for the upcoming busy period. Then you can pay it down when things pick back up.

Do draw on a line of credit to increase your business’s capacity.

Once you have proof that your idea works, you may want to stock up on inventory, equipment or staff. Those investments will help you generate more revenue — but you can’t make them until you have some cash. A credit line can help you take that first step.

Do use a line of credit to help build your business credit.

Most credit lines report your payment activity to business credit bureaus, including the Small Business Financial Exchange, Dun & Bradstreet and Equifax. That can help you create the financial history you’ll need to apply for other types of financing, like SBA loans.

Do consider applying for a line of credit as a hedge against a possible recession.

Lending standards tend to tighten in a tough economy. Just know some lenders charge a maintenance fee whether or not you use your credit line. For instance, Bank of America’s Business Advantage credit line costs $150 per year (although it waives that cost for the first year).

Don’t apply for a line of credit out of desperation.

Most lines of credit are unsecured and require you to sign a personal guarantee. That’s a promise that if your business can’t pay back its debt, you’ll do so personally. It puts your personal savings on the line.

Don’t try to get ahead of interest rates.

Many lines of credit have variable APRs, so they’ll fluctuate with market rates. That said, the Fed has already lowered interest rates twice this year. If rates continue to fall, borrowing money should generally get cheaper, not more expensive.

But what really matters is the interest rate either when you draw on the line or when you repay it. Lines of credit apply charges differently. Read the terms and conditions to make sure you understand how your credit line will work.

For example:

Lots of banks and online lenders offer business lines of credit. If you already have a business checking account, your bank may be a good place to start. Or see NerdWallet’s list of the best options, including some from online lenders.

When you apply, lenders will consider your personal credit score, annual revenue, accounts receivable and time in business. In general, you’ll need a FICO score of at least 600 and at least three months in business to qualify with an online lender. Banks generally want to see higher credit scores and a longer business history.

If you’re not in a hurry, talk to your business banker about your options. (Don’t have a business banking relationship yet? Here’s more about starting one.) If you need funding fast, take a look at online loan options.

NerdWallet’s Karrin Sehmbi finds and shares these grant opportunities.

Intuit and Mailchimp will award $20,000 grants to small-business owners nominated by their community members. The next round of nominations is due Nov. 14, and three winners will be announced mid-December. The companies will give a total of 12 awards between September 2025 and June 2026.

Click here to see the application.

This program is different from many other grant opportunities since you, the business owner, don’t apply. Instead, others — like your customers, community members and friends — nominate your business for consideration.

Nominators must be at least 18 years old. They’ll have to submit a statement of 50 to 300 words describing the positive impact your business has on your community, as well as the passion you demonstrate as a business owner.

Winners receive not only a cash prize but also some free advertising in the form of Instagram posts by both QuickBooks and Mailchimp handles. Good luck!

Did you know that some startup grants come in the form of pitch competitions? Even if you don’t plan to present to a panel of judges, a strong elevator pitch can be a useful tool. It can help you gain investor buy-in or give a bank more confidence to extend you a loan.

Karrin tried her hand at pitching a Practical Magic-inspired business idea. Check it out below, then spend some time practicing your own elevator pitch to ensure you can quickly and clearly explain the unique value of your business. Happy Halloween!

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