One of the most powerful assets of small businesses is their line of credit financing. That’s because access to these monies allows firms to quickly capitalize on sales opportunities to purchase supplies and additional labor.
Business line of credits are vastly different than conventional SBA business loans. A business line of credit is sometimes called an LOC. And it is much more like a credit card that a conventional installment loan. Read more about Kabbage line of credit reviews
When your account is approved it is for a specific amount of credit say $100,000. Your firm will then have access to these funds to use at their discretion.
Some lenders give checkbook control and others issue cards which look like credit cards. As opposed to a conventional business loan where the borrower receives the full amount at the onset loan.
Using a line of credit allows companies to save interest fees because they only pay for the amount they borrow not the full loan principal.
Business owners are confident knowing that they have access to capital for emergencies such as equipment repairs or hiring new employees. Additionally lines of credit are effective ways to supplement working capital in slow seasons.
Selecting Your Business Line of Credit
Financing for businesses with lines of credit are often the best decision for short-term cash flow needs due to lower rates and more flexible borrowing terms.
Business line of credit, come in two forms secured and unsecured. The secured loans require assets as collateral such as your home, vehicle, inventory and business equipment. The unsecured line of credit version does not require collateral and thus is more difficult for new businesses to get approved. Because these loans are riskier for the bank unsecured credit lines typically have higher interest rates.
The single most important action you can take to qualify for business line of credit in the future is to maintain good personal and business credit histories right away.
Lenders will closely scrutinize your firm’s ability to generate positive cash flow because this revenue is what will make the LOC repayments.
It is wise to begin by applying for a lower line of credit amount and then building up positive credit history with your lender that could result in increased credit later on.
You should always apply for a line of credit long before you actually need it. The intention of these types of financing is to support businesses in unexpected times.
FAQ Business Line of Credit
How can I increase my line of credit amount?
Best ways to get approved for more money is to always make your payments on time, pay off existing debts and increase your revenue. All of these factors are strong indicators to lenders of your financial health and will often result in a larger line of credit.
What can I use my line of credit to buy?
Dependent upon your lender agreement, you can use the funds to make purchases for your business such as supplies, labor, rent, payroll and advertising.
Minimum requirements for a business line of credit approval?
Most lenders will require that you be in business for 6 months and generate $25,000 in annual revenue. Some lenders only approve business owners with credit scores of 500 or better.