Business lines of credit are a great option for small businesses that need quick access to capital. They allow you to draw from a line of credit as needed and repay it over time, avoiding the hefty fees associated with a cash advance on a credit card.
They are also a great way to build your business’s credit. But before you apply for a business line of credit, consider your business’s needs and whether it makes sense for your company.
They are revolving
A business line of credit is like a personal credit card, but you can draw funds from the account whenever you need them. It allows you to access funds without the hassle of a traditional business loan, and you only pay interest on what you use.
Revolving lines of credit are especially helpful for cyclical businesses that see fluctuations in cash flow due to seasonality or sales volume. They allow you to offset a sudden dip in cash flow by paying bills, covering payroll, or investing in new inventory.
Revolving lines of credit are also a great option for expanding a business and taking on new opportunities. It’s easy to borrow up to a certain amount, and you can use the extra cash for anything that will help your business grow.
They are unsecured
An unsecured business line of credit works like a credit card, except you don’t need to put up any collateral. It is ideal for small business owners who want quick access to money, but it may cost more than secured financing.
A lender checks your business and personal credit when evaluating a business line of credit application. A high credit score indicates that you are a reliable borrower, and it gives you better loan approval odds.
Unsecured lines of credit often have higher interest rates than secured ones because lenders assume more risk. However, they can be an option for small businesses with poor credit histories and long-established businesses that need fast access to funds.
When choosing a lender, look for one that offers low APRs and repayment periods as well as flexible terms. For example, Lending Club’s unsecured business line of credit ranges from $5,000 to $300,000 and has APRs as low as 5.9%.
They are flexible
A business line of credit (LOC) is a flexible way for businesses to get short-term funds. Unlike a term loan, a business line of credit allows borrowers to borrow money when they need it and repay it over time without interest.
A LOC may be a good option for businesses that need to cover short-term expenses like inventory, payroll or seasonal fluctuations in revenue. However, it’s not always the best fit for larger purchases or long-term needs.
For example, a business that doesn’t have a strong track record with clients might struggle to qualify for a LOC. Alternatively, a business that has experienced recent problems might be better off with a term loan or working capital loan.
To apply for a business line of credit, a business owner typically must provide comprehensive financial statements and other documents that demonstrate business stability and profitability. This process can take weeks or even months, depending on the lender.
They are a good way to build credit
A business line of credit offers a pool of funds that you can draw on when needed, up to your limit. You only pay interest on the amount you use, and when you’ve repaid your money, your line of credit replenishes itself for you to borrow from again.
You can get a line of credit from a traditional bank or an online lender. The latter often has streamlined application processes and fewer fees but may charge higher interest rates than banks.
Getting a line of credit for your business can be helpful when you need a source of working capital for sudden expenses, cash-flow needs or major purchases. They can also help you build your credit score if you use the money responsibly and repay it promptly.
When you apply for a business line of credit, lenders will check your personal and business credit scores to determine if you’re a good candidate for the loan. They’ll also review your business’s financial history and revenue reports to assess your risk level.
