Lines Of Credit Business – No one knows what tomorrow holds, and as a business owner, you need to be flexible enough to adapt to these changes as quickly as possible to not only stay afloat, but also take full advantage of growth opportunities.
One way is a business line of credit, which offers unparalleled flexibility and reliability, even when it comes to the most advanced financing options.
Lines Of Credit Business
With a business line of credit, you can get the capital you need instantly—whenever you want.
What Are Lines Of Credit And Line Of Credit Requirements
But how exactly does a business line of credit work, and most importantly, what can you do to improve your chances of qualifying for one from a lender?
We touched on what a business line of credit is a minute ago. However, you need to understand the basics not only so you can decide if it’s the right option for you and your business, but so you know what you’re getting yourself into if you decide to do it.
A business line of credit works just like a credit card. For a monthly fee, you get access to a specified revolving credit amount.
The best part is that you can use this loan anytime: tomorrow, next week or next month (or longer). Also, as long as you pay off the balance within a certain amount of time (usually with a six- or 12-month repayment period), you can continue to use that line of credit.
The 4 Lines Of Credit Now Available To Small Businesses
Secured lines of credit are usually offered by traditional lenders and require strict qualification guidelines, the most notable of which is a good credit history (660+ in many cases).
However, with the fintech boom, new alternative lenders have emerged that take a more comprehensive approach to qualification and the approval process, meaning you don’t need stellar credit if your business is growing.
At the moment, a business line of credit can seem quite useful as a means of maintaining the necessary cash flow for both business growth and stability.
But what do you need to get a line of credit? And what can you do to increase your chances of getting approved and make the approval process easier? That’s what we’re going to talk about here.
Requirements For A Small Business Line Of Credit
Lenders are looking for companies with serious experience and a good track record, because they want a guarantee that you will be able to repay the line of credit.
With this in mind, it’s never been easier to apply for a line of credit, as even relatively new businesses (only a few years old or less) can be approved.
Keep in mind that the qualifying factors will vary from lender to lender, but they all have the same requirements.
In addition, what you are approved for, including repayment terms and credit line size, will vary based on additional factors such as:
Loc, Line Of Credit Symbol. Books With Words ‘loc, Line Of Credit’. Beautiful White Background, Copy Space. Business And Loc, Line Of Credit Concept Stock Photo
However, as mentioned above, which of these factors carries more weight (especially credit) depends on whether you’re applying to a traditional lender like a big bank or an alternative lender.
Once you’ve read the eligibility guidelines for business lines of credit, it’s time to gather your documents and apply.
However, to get approved for a line of credit, the lender may require several other documents after you apply. For this reason, you will want to have these documents ready in case they are requested to facilitate approval.
With all the proper documents in place and a healthy business outlook, many lenders can fund your bank account within 24-48 hours, so it’s important to have these documents on hand in case you need funds quickly.
How To Qualify For An Unsecured Business Line Of Credit
A business line of credit offers unparalleled flexibility and power, especially for small business owners who may not know what’s around the corner (as none of us do).
For this reason alone, it’s worth considering a line of credit as a way to navigate seasonal fluctuations and stabilize your business so you’re ready – no matter what happens.
Biography – Chad Otar is the CEO of Excel Capital Management, a pioneer in fintech and alternative lending. Over the past 5 years, he has helped thousands of business owners obtain unsecured business loans and is focused on helping every small business gain access to capital. On the other hand, entrepreneurship gives all the freedom in the world. For the self-employed, every day is a normal Friday, and the work week doesn’t have to start before Tuesday if you don’t want it to.
On the other hand, entrepreneurship comes with the stress of running your own business. You can’t just be good at your chosen profession. You’ll also need the smooth talk of a salesperson, the savvy of an accountant, the skills of an effective marketer, and the organization of a great office administrator. For self-employed people, it is necessary to cope well with a dozen jobs at the same time every day.
The Benefits Of A Revolving Line Of Credit For Your Business
And when you can make it work, running your own business will take money. This is where lines of credit come in.
Note that this article will discuss business lines of credit in the context of small businesses. Although businesses of all sizes share the same basic principles, in practice, lending to large companies is often different from lending to small businesses.
As a lump sum loan (otherwise known as a payday loan), a line of credit gives a business access to a specified amount of money on fixed loan terms. However, unlike a loan, money is not provided in advance. In return, the company can access funds up to this amount as needed. Typically, the business has immediate access to this money once the line of credit is approved.
Unlike a loan, banks rarely, if ever, put conditions on the use of a line of credit. This makes many lines of credit unsecured because they are not tied to any specific purchase that the bank can use as collateral. However, a line of credit is not always unsecured. In cases like a home equity line, the borrower can put up collateral against the line of credit, even though the collateral has nothing to do with how the borrower spends the money.
Small Business Credit Line
As soon as the company borrows any amount from its credit line, the bank starts charging interest. This is usually calculated on a monthly basis.
The credit line works on a so-called “revolving basis”. This means that as soon as the company repays part of its loan, this money becomes available for borrowing again. A line of credit works more like a credit card than a one-time loan. A business can borrow from the same pool of money over and over as long as it never exceeds its overall lending limit.
Richard owns a flower shop. Like all flower shops, his business has its ups and downs. His business booms during certain holidays, such as Valentine’s Day, Mother’s Day and the wedding season, with long periods of stagnation in between.
To smooth out his cash flow, Richard has a $10,000 line of credit at a local bank. In October, he borrowed $4,000 from this line of credit, reducing his available credit to $6,000. In November and December, he paid off this loan and accrued interest with vacation income. At the start of the new year, he again had full access to a $10,000 line of credit for the long, flowerless decline in March.
Business Line Of Credit Vs. Credit Card
First, to meet specific, short-term needs. While a company is completing a particular project, it may encounter unexpected costs. A typical example is construction and major renovation. If, as in the above example, Richard decides to build an extension to his flower shop, he can obtain a line of credit to cover the contingencies incurred during the completion of the construction.
Secondly, to smooth cash flows. This is the example used above. Many businesses that have fickle or seasonal customers will use a line of credit to smooth out their cash flow, ensuring that they always have access to a minimum amount of cash on hand.
Importantly, a line of credit is generally not an option for start-up businesses. Rarely, if ever, will a business use a line of credit to pay for its initial startup.
A line of credit is typically one of the three main lending options available to small businesses. The other two are one-time loans and credit cards.
Business Loans Vs Business Line Of Credit
Compared to a lump sum loan, a line of credit usually offers more flexibility but less access to capital.
A line of credit offers immediate access to cash. In addition, it allows the business to borrow only the amount that meets its current needs, minimizing one-time interest payments.
However, since this is an unsecured flexible loan, most (if not all) banks will lend you less money than a lump sum loan. Also, a line of credit will almost always be more expensive. As a result, for large capital needs, you should generally consider lump sum loans. They are cheaper and easier to provide in the right amount. If you need access to cash on an occasional or permanent basis, consider a line of credit.
A credit card and a line of credit function in almost the same way. Both are revolving loans where you only pay what
A Complete Guide To Business Line Of Credit
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