Things you need to know before you apply for a business line of credit

By: thomassujain

Businesses have multiple credit requirements. Simply put, a business line of credit gives flexibility that the usual business loans don’t provide. Making use of a line of credit, companies have the chance to borrow money to a selected limit, for instance, $100,000. Business owners also are required to pay the interest on the chunk of capital that they usually borrow. Post this you can draw and repay the money as and when needed. Till such time the credit limit surpasses, everything is fine. Typically, this funding type works akin to a credit card.  

So, do you have to manage your cash flow? Are you planning to buy inventory or have to pay for an unwarranted cost incurred? If yes, then a business line of credit is the option for you.

How does it work?

Usually, a business line of credit varies from term loans that offer a substantial cash one-time upfront, and that needs to be repaid, over a consolidated time. Using a line of credit, you have the chance of reusing as well as repaying as frequently as you want to. The only pre-requisite is you should not exceed the credit limit and make your payments timely. The majority of lenders enable borrowers to repay the balance amount in totality to make savings on interest.

Usually, the limit up to which you can borrow varies between $5,000 and $150,000. The line of credit that has lower credit limits is generally unsecured. Hence, collaterals like inventory and real estate isn’t a need.

How does one qualify for this?

Most conventional lenders, for instance, banks need businesses to have a quality revenue flow and a good credit history to qualify for a business line of credit. The larger credit lines might require collaterals. And that can be duly seized when the borrowers fail to repay the amount within the specified time.

To apply, the lenders generally require the following documents:

  • Bank account data
  • Business and personal tax returns
  • Business financial statements
  • Balance sheet
  • Profit and loss statements

Furthermore, the online business lenders usually have less strict criteria than banks. They also charge an increased rate than the banks. To qualify your business at least needs to be six months old having annual revenue of $25,000. Few lenders don’t give a minimum credit score. But still, borrowers should score 500 or more to qualify.

In addition to this there are many pros to a business line of credit that comprises of the following:

  • A questionable credit is acceptable
  • Only pay the interest on funds that are drawn
  • It is a great way to set up a credit score
  • The money is accessible when required
  • It is perfect for various business needs

The best benefit of a business line of credit is the fact that it’s renewable. You can get your funds, repay the same and then draw the same again. You opt-in for a small business line of credit to fund all your operating costs, leverage the best opportunities, cover the cash flow gaps and offer an alternative to secure against any emergency. It is also flexible and can be used for annual costs, payroll and unwarranted investments.


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