Secure a Business Line of Credit to Enhance Cash Flow

In this guide, we’ll answer the following questions and more:

• How Does a Business Line of Credit Work?

  Once you borrow from your small business line of credit, you’ll pay interest and have a minimum payment, similar to a business credit card. Your first payment could be due the following week or at the end of the month, depending on the lender. Timely repayments replenish your credit line. For example, if your monthly payment is $200 with $10 interest, repaying $200 restores your credit line by $190. Your interest rate depends on how quickly you pay off the balance.

  You might also pay a draw fee of 1.6% to 2.5% each time you access funds. While you have a repayment term for the total balance, paying it off early saves on interest, and the credit line becomes available again.

  Borrowing limits range from $1,000 to $1,000,000, with interest rates starting at 8% and terms up to 18 months. Lower limits and higher rates are typical for unsecured lines of credit, which don’t require collateral but may require a personal guarantee. For higher limits, consider a secured line of credit, using assets like real estate as collateral.

• What Are The Advantages of a Business Line of Credit?

  With traditional small business loans, you must make monthly payments plus interest, regardless of whether you’ve used the borrowed funds. Payments begin immediately after the funds are disbursed. In contrast, with a small business line of credit, you only make minimum payments when you actually use the money. Some lenders even provide an access card for in-store and online purchases.

  A small business line of credit is ideal for managing unexpected expenses or opportunities. In the business world, these situations are inevitable. For instance, if a retail item is in high demand and you’re about to sell out but lack the funds to restock, a line of credit can provide the necessary cash. Conversely, if demand suddenly drops, a line of credit can serve as a financial cushion to keep your business running.

  While traditional small business loans require extensive rate shopping, document preparation, and applications, a business line of credit is readily accessible when needed.

  Business lines of credit offer higher borrowing limits than business credit cards. If you max out a business credit card, your interest rates will soar, and your credit score will suffer.

  Moreover, business lines of credit typically have more lenient requirements. You don’t need an excellent personal credit score, high annual revenue, or more than a year in business to secure enough funds to sustain your company during an emergency.

• What Are The Disadvantages of a Business Line of Credit?

  Over the past decade, business lines of credit have become more accessible. Many online lenders can approve secured and unsecured lines of credit within 24 hours, even for those with bad credit or a troubled credit history. However, these options often come with higher interest rates and may cap borrowing at $1,000,000.

  Traditional lenders, on the other hand, may offer lower rates and higher borrowing limits but require high annual revenue, at least two years in business, excellent credit, and sometimes collateral, putting business assets at risk.

  A key consideration with a business line of credit is timing. The best time to apply is when your company is performing well, allowing you to secure higher borrowing amounts and lower rates. Applying during a cash flow crisis may not yield the same benefits.

  This brings us to why business lines of credit aren’t as popular. Many business owners are incredibly busy, and applying for credit during good times is often not a priority. It feels counterintuitive to seek funding when you don’t immediately need it, which is why it often gets overlooked.

• Who Qualifies For a Business Line of Credit?

  To qualify, businesses typically meet these criteria:

  Annual Revenue: $200K+

  Credit Score: 625+

  Time in Business: 6+ months

• How To Apply For a Business Line of Credit:

  To qualify, eligible small businesses must have been operating for at least six months with a minimum credit score of 575. Additionally, you need to demonstrate that your company is currently profitable. Upon approval, funding can be disbursed within 1-3 business days.

  Here’s how to get started:

  **Step 1:** Determine Your Funding Needs
  Business lines of credit are often applied for before an immediate need arises, so it’s important to estimate how much funding you might require and why you’re seeking it.

  **Step 2:** Gather Your Documents
  While specific requirements may vary based on your credit profile, having the following documents ready is recommended:

  – Business bank account statements from the last three months
  – Driver’s license
  – Voided check

  **Step 3:** Complete the Application
  You can initiate the application process either by calling us or filling out our concise online form. Provide the requested information, including your desired funding amount.

  **Step 4:** Consult with a Representative
  After you submit your application, a representative will contact you to discuss repayment terms, rates, and other details relevant to your options.

  **Step 5:** Await Approval
  Upon approval, funds should be deposited into your bank account within 1-2 business days. This ensures a straightforward process without unexpected surprises or hidden fees during repayment.

• What If I’m Declined For a Business Line of Credit?

  If your application is declined for a small business line of credit, it may not be the most suitable financing option for your needs. In such cases, we might suggest exploring alternative loan options such as working capital loans, unsecured lines of credit like business credit cards, or even personal loans available through our partners. Building a solid payment history with these options can improve your chances if you apply for working capital again later. You’ll also gain insights into managing expenses with a business credit card and optimizing your borrowing limits.

  Another reason for decline could be poor personal credit scores. If this is the case, consider our credit repair services to address and improve your personal credit standing. We can also assist in enhancing your business credit rating with relevant bureaus if that contributed to your company’s decline. Since the Small Business Administration (SBA) typically requires excellent credit, improving both personal and business credit scores is beneficial. Additionally, credit unions are excellent sources for business lines of credit, offering favorable rates and programs to their members.