BUSINESS Line of credit

Business Line of Credit

A business credit line allows you to access funds up to your credit limit. You pay interest only for the money that you have drawn. This can offer more flexibility than a traditional term loan.

Pros:

• Flexible borrowing options

• Most often, the loan is unsecured and no collateral is required.

Cons:

• Additional costs may apply, including maintenance fees and draw charges.

• Strong credit and revenue are required.

Ideal for:

• Management of cash flow, short-term financing and handling unexpected expenses are all possible.

• Businesses that are seasonal.

The business line of credit is similar to a credit card, where you can borrow up to a limit and only pay interest. The funds are then repaid and you can draw more.

A business line of credit offers more flexibility than traditional small-business loans, which you get a lump sum and then repay it over time with interest. A business line of credit can be used to cover short-term financial needs such as covering payroll, managing cash flow, or buying inventory.

BuSiness Line of credit

How Does a Business Line of Credit Work?

A business credit line works in the same way as a credit card. A line of credit allows you to access a fixed amount of capital, such as $150,000, and can draw money as required. Only the funds you draw will earn interest.

The funds are then repaid over time, usually on a weekly- or monthly basis. To save on interest costs, many lenders will allow you to pay off your entire balance before it is due. There are additional fees that some lenders charge, such as:

• Origination fee: A fee charged to process your request.

• Account maintenance fee: A monthly or annual fee for managing your account and maintaining your business credit line.

• Draw fee: Charge for each draw to your credit card line.

• Inactivity fee: If you do not draw from your credit line within a certain time frame, a lender may charge this fee.

As long as your payments are on time and your credit limit is not exceeded, you can continue to draw from your business credit card line. Revolving credit is better than business terms loans which are fixed-term and require you to repay a lump sum.

Secured vs. unsecured business lines of credit

Secured business credit allows you to pledge assets like inventory or property as collateral. Lenders can seize your assets if you don’t pay the credit line.

Unsecured business credit lines don’t require collateral. However, some lenders might still require a personal guarantee, or a lien on the assets of a business.

A personal guarantee allows a lender to seize your personal assets such as your home if you default on your loan. Similar to a lien, a lender can take your business assets if the loan is not repaid.

Ask lenders whether collateral is required, such as a personal guarantee, or a lien, so you can choose the best option for your company.

Business credit cards vs. business lines of credit

Business credit cards can be considered lines of credit but are different from traditional lines of credit in many ways.

A business credit line can offer a higher credit limit and may be secured with collateral. It also provides cash in your account when you draw. Although you can obtain cash using a business credit card (often called a cash advance fee), there will be higher fees and an APR.

However, business credit cards can offer cash back or rewards for spending, which isn’t offered by traditional credit lines. Rewards can be related to business expenses such as office supplies and internet. You may also be eligible for 0% Interest Promotions, that allow you to have no interest for a certain time after signing up for your card.

For smaller ongoing expenses, and newer businesses with less established finances, business credit cards are best. Business lines of credit are best for more established businesses and larger ongoing expenses.

BUSINESS Line of credit

Where to Get a Business Line of Credit?

Credit unions and banks

Credit unions and banks can offer various types of business credit lines including secured and unsecure business lines of credit as well as SBA credit.

These lenders may offer business credit lines with attractive interest rates. However, they will typically require that you meet certain requirements. Strong revenue and credit history are essential, as well as several years of experience in the business.

Banks and credit unions are more likely than online lenders to require collateral to secure your credit line, especially for larger amounts. They also tend to charge higher fees, such as inactivity and annual fees.

Online lenders

Bluevine and Fundbox offer more flexibility than banks and credit unions when it comes to credit line requirements. Some online lenders can work with businesses and startups with poor credit.

Online lenders often have simplified application processes and lower fees. They may even be able issue small-business lines credit within days. These lenders may charge higher interest rates than banks, and have lower credit limits.

BUSINESS Line of credit

How to Get a Business Line of Credit?

First, determine the amount of funding you require and how fast you need it. To determine which lines of credit are available, you will need to assess your creditworthiness, including time in business, revenue per year, and credit score.

Once you have an understanding of your financial needs and qualifications, it is possible to research and compare lenders in order to find the best option for you and your company. You can apply for a line of credit for your business through a bank or credit union. Or you can use an online marketplace to compare multiple offers and submit one application.

Lenders can change the interest rates, borrowing limits, and qualifications.

Lenders will usually consider your credit history and financial history and request documentation such as:

• Tax returns for individuals and businesses.

• Statements from personal and business banks.

• Financial statements for business (e.g. profit and loss statement, balance sheet)

Additionally, you may be asked to sign a personal guarantee or provide collateral.

It may take up to 24 hours to complete your application, funding, and underwriting process, depending on the lender.

BUSINESS Line of credit

Find the Right Business Loan

The best business loan is the one that has the best terms and rates. Other factors, such as your time and business qualifications, can also influence which loan option you choose.