For short-term needs such as stockpiling inventory or buying materials, a business line of credit may provide the ideal financing solution. Just make sure that its usage doesn’t spiral into debt that out of control.
Banks typically require extensive financial statements and tax returns from small business applicants before considering them for a line of credit, so it’s wise to submit your application when both your cash flow and business are healthy.
Flexible Credit Line
Contrasting with traditional loans which provide one lump sum and require installment repayment, business lines of credit allow businesses to draw upon funds as needed, with interest only charged on what was actually borrowed.
This means you won’t need to apply for loans every time your company needs additional working capital, saving both you and your company on interest costs. This approach can especially prove advantageous to seasonal businesses who may experience periods of reduced work flow.
Major banks, both commercial and community, as well as online lenders offer lines of credit to business. Before selecting one for yourself, it is wise to compare their maximum credit limit, repayment terms offered, minimum requirements, APR ranges and APR ranges to find one best suited to your company’s needs.
Low Interest Rates
If you have excellent credit and an established history of on-time payments, a business line of credit may be an affordable way to fund your small business. Unlike a term loan which requires payments in instalments over an extended period, your line can be used whenever it suits your business needs.
Business loans can be found from banks, credit unions and online lenders alike. Banks and credit unions typically offer lower interest rates but may impose strict eligibility requirements.
However, many online lenders offer simplified application processes and lower fees; business lines of credit may even be issued within days. Some even work with startups and businesses with poor credit – though these lenders tend to charge higher interest rates and less spending limits than banks.
Flexibility
Business lines of credit (LOCs) provide businesses with a flexible funding solution designed to address short-term cash flow problems. LOCs may prove particularly helpful for organizations that experience late invoice payments or unexpected expenses that arise unexpectedly.
LOCs can also help cover ongoing business expenses or bridge cash flow gaps between customer payments. Unlike term loans, which require repayment in one lump sum upfront, LOCs allow you to draw funds when needed and only pay interest on what has been withdrawn.
Applying for a line of credit may seem straightforward, but it’s still essential to review your qualifications thoroughly. Lenders usually evaluate both personal and business credit scores to assess financial risk; additionally they may request physical collateral or require you to sign a personal guarantee agreement as a form of security.
No Collateral
If your business requires short-term funding, business lines of credit could be the perfect solution. Since these unsecured revolving lines don’t require collateral as security to qualify for approval, they offer quick approval processes with no security needed to get approved for one.
Banks often prefer assets such as real estate equity or physical inventory as security for loans; however, these may not always be appropriate for small businesses. Instead, banks may approve you for a business line of credit if your accounts receivable can serve as security.
However, if you lack assets to pledge as security for a loan, alternative lenders offer no-collateral loans that provide quick cash to cover payroll or expand your business but without pledged assets as security. These loans may be just what’s necessary.
