Everything You Need to Know About Getting a Business Line of Credit
How much money do you need to start or expand your business? You could go the traditional route of applying for a bank loan, but if you’re looking to grow and succeed quickly, it might be more beneficial to get a line of credit instead.
Business lines of credit come in many forms from different lenders that give you access to funds as needed without any additional work from you—as long as you pay them back! To help you better understand business lines of credit and which one might be right for your company, here’s everything you need to know about getting one.
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What is a business line of credit?
A line of credit allows you to borrow up to a certain limit. For example, if you take out a $25,000 line of credit, you can borrow up to $25,000 for your business expenses as you need it. You pay interest on your outstanding balance each month and pay back what you borrow plus interest once it’s repaid (this is also known as draw-down).
The advantage of a line of credit over other types of financing is that you don’t have to use the all your money at once. Instead, as you need more money in your business, you can simply pull from your line of credit.
Types of business lines of credit.
Who qualifies for a business line of credit?
Generally, a business line of credit is offered by banks and other financial institutions. Small-business owners who qualify for these lines of credit typically: 1) have been in business for at least 12 months; 2) have a proven track record; 3) have adequate collateral.
They also generally don’t need a personal guarantee on their loan, although some banks will require one.In addition, a business line of credit is usually based on your business revenue.
For example, if you make $20,000 a month in revenue or more as a small business (or if you have enough assets), it’s likely that your bank will approve your request for a business line of credit. If you make less than $20,000 per month (or if you have fewer assets), it may be harder to get approved.
What are the benefits of a business line of credit?
First and foremost, it can save you money. A small business line of credit offers more flexible repayment options than a bank loan—making it easier to manage your cash flow. That’s because you get an advance on your line of credit that lasts for as long as you need it (up to 5 years) and then pay back any balance over time with monthly payments. No prepayment penalties! Plus, interest rates are often lower than those for other types of business loans.
Why do businesses need it?
A business line of credit is an important part of your working capital. Whether you need cash for operations, inventory or for paying down debt, having access to a business line of credit can mean better cash flow and more money in your pocket. It’s also great for peace-of-mind – knowing that you have access to money without having to sell stock, dip into personal savings or find another lender. A business line of credit can be a valuable tool as long as it’s used wisely.
Should you get a business line of credit?
If you are in business, chances are that you need funds available and accessible at any time. Rather than write a business check, get cash from an ATM or make several trips to your bank branch every time you need funds, it may be more practical to apply for a business line of credit. A business line of credit is similar to a traditional personal line of credit except that it’s issued specifically for your business by either your lender or another financial institution.