Do you need funds to start a business? Which financing type will be more suitable for your business? A business line of credit is a tremendous opportunity for the business owners that are looking for flexibility and control over financing. It also supports a business to build and improve its credit.
In addition, the NSBA has found 20% of small business loans get rejected due to credit score, and 46% of small business owners use credit cards to finance their businesses. Therefore, it’s never been imperative for you to build business credit timely.
Getting started with a business line of credit helps in building business credit, and makes it easy to apply for future funding. Moreover, it also helps to finance your business and its operations. One can receive a line of credit up to a specific range set by lenders—including interest rate. Once, you refund the withdrawn amount, you’ll get more access to the full amount of credit card.
How does a Business Line of Credit work?
Let’s suppose, you’re an owner of a beverages company, having a business line of credit up to $15,000. There is an upcoming event and you’ve to supply 5,000 soft drinks. So, you withdraw $5,000 to finance the material and manufacturing cost. With a business line of credit, you’re able to access the full amount of $15,000 again, after repaying the $5,000.
However, a business line of credit comes with a number of benefits such as:
- Provides flexibility to access the funds in order to meet business expenses and operations.
- In a business line of credit, you don’t need an extensive credit card history or an outstanding credit score.
- It offers you an opportunity to build your credit score.
Any source of capital has its own advantages, and a business line of credit is no more different. Your credit limit and interest rate depend on review findings and can be modified anytime. It enables business with low credit score to access the business line of credit. However, for this type of business loan, lenders usually offer high-interest rates based on credit history.
Difference between Business Line of Credit and Term Loan
You might be conscious: what’s the difference between a business line of credit and a traditional term loan? Let’s clarify that. Usually, traditional term loans are suitable for large, and one-time investment or purchases, and you’re liable to repay the money within the fixed duration.
Whereas, a line of credit is used for ongoing, small or unanticipated expenses, to maintain the revenue and cash flow. One can apply for two major types of business lines credit.
Secured Line of Business Credit
A secured line of credit is suitable for established and new business with collateral—including inventory, property (personal or commercial), and equipment.
If you’ve been in business for more than a year with strong credit, you’re eligible to obtain a loan. Definitely, a new business might not able to show extensive credit history, and it can be difficult to get approved for a business line of credit.
Unsecured Line of Business Credit
An unsecured line of credit doesn’t need collateral—revenue and business credit must be in good standing. If you obtain an unsecured business line of credit to avoid risk, it can affect your personal and business assets. However, interest rates for an unsecured line of credit is usually higher.
How to Apply for a Business Line of Credit?
In order to obtain a business line of credit, you’ve to follow a few requirements while applying:
- Credit score
- Bank account history
- Personal and business tax returns
- Financial statement of a business
- Information to find your business—Employer Identification Number (EIN)
Mistakes to Avoid
- As a business owner, you must have a clear vision of what the funds will be used for. A business line of credit favors your business to obtain a long-term credit limit.
- Whenever you need a business line of credit, apply the rule of thumb. You’re more likely to receive the funds if you apply during the positive cash flow of your business. Lenders usually review your financial statements while funding.
- Be careful, while filing an application. Simple mistakes, such as putting an incorrect identification number, might cause problems. Make sure that you’ve provided the correct phone number and email address—so the bank or lender can approach you easily.
Can You Obtain a Business Line of Credit with Bad Credit?
A credit score is an expected risk, adopts by a lender when you acquire funds. The risk is calculated through an obtained loan, credit card history, and types of credit. Credit score usually ranges from 300 to 850, whereas guidelines for good and bad credit are:
- Great credit score (740 to 800)
- Good credit score (670 to 739)
- Fair credit score (580 and 699)
- Bad credit score (579 or lower)
List of Lenders Providing a Business Line of Credit
A number of lenders, offering a business line of credit and the requirements of getting a loan may vary.
On Deck is an alternative lender, offering quick business funding. If you’re looking for funds up to $100,000, it’s the best stop for you. Your application for a business line of credit gets approved within 24 hours.
To avail a business line of credit, you must have been in business for up to three months. An easy application process, no credit score requirements, and get a loan up to $100,000.
Kabbage values business owners by offering them a line of credit for capital working purposes. Suitable for the business with fair to bad credit, without a minimum credit score requirement. Kabbage offers a line of credit up to $250,000, and the application is approved within 24 hours.
It offers a line of credit to the businesses having bad credits. With an easy application process, you can be approved for a loan up to $250,000 within 12 hours.
Well Fargo offers an unsecured and secured business line of credits, suitable for the businesses having a good credit score. If you’re looking for funds up to $500,000, Wells Fargo will be a safe option for you.
A business line of credit is a superlative way to increasing a business credit and securing funds for operations. It’s a type of loan that helps to put your business in control. Are you finding it difficult to find the right line of credit for your small business? Let us help you choose the RIGHT FUNDING SOLUTION for your small business.
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