What Is a Business Line of Credit?
When it comes to business, either small or big, a business line of credit can help when times are hard. In this article, we will discuss what a business line of credit is and how it can help you with your business.
Now let’s take a look at what is a business line of credit and what you can use it for. The principle behind it is very simple. A business line of credit is a loan that can be used to help businesses to expand or improve their operations. When in search of this loan, businesses turn to banks or credit unions as their lenders to borrow the needed money for projects or expansion. Also, this type of loan can be used to cover ends meet when the money is tight. What makes a business line of credit very attractive is the fact that they are usually more lenient than traditional loans and offer the needed money to companies without the possibility of high-risk debt.
How Does a Business Line of Credit Work?
A line of business credit is a short-term loan that businesses can use to finance specific needs. Why a lot of businesses turn to this option is because they tend to have flexible terms and interest rates, and it also gives them the possibility to get money fast without borrowing from the bank.
The great thing about a business line of credit is that they are tailored especially for the borrower’s needs, so it doesn’t matter if you have a small or big business. You can still get up to 90% of the total project investment money.
So if you are looking to get started with this loan, you can contact your bank or credit union to find out more about a business line of credit availability.
Business Line of Credit vs. Term Loan: What’s the Difference?
If you are in consideration to take out a loan for your business, you might be wondering what the difference is between a business line of credit and a term loan. The first thing to know is that both types offer benefits, but there are some key differences that can affect your decision. Let’s break them down.
Business Line of Credit: This is the type of loan that allows businesses to borrow the needed money to cover their short-term working capital needs. A business line of credit is very popular with small businesses because it offers lower interest rates, and they can qualify for it easier. Because this is a short-term loan, businesses can use this type for smaller purchases.
Term Loan: On the other hand, a term loan is a longer-term option, but usually, it has higher interest rates in comparison to a business line of credit. This type of loan is most commonly used by businesses that need more money for either expansion or to buy equipment. Also, since they are long-term, you will have more time to repay it back.
How to Qualify for a Business Line of Credit
As mentioned before, a business line of credit can be a great way to get the needed funding for your business. Here we will tell you how to get a business line of credit. The first thing to know is that a business line of credit has needed requirements in order for you to get one. We will tell you what you need in order to qualify for it.
Here is the list:
- Decide about the needed funding. Before you take out this loan, make sure you know exactly how much you need to borrow. Available amounts to borrow depend from lender to lender but vary from 2,000$ to 250,000$.
- Check your eligibility. Make sure that your credit history is good and that your score is at least 680, but some lenders will accept low scores of 580 to 600. Also, check what is the minimum business revenue that the lender asks for since it can vary 10,000$ a month to 250,000$ a year. Last but not least, a lot of lenders require that the business is up and running for two years and more, while some online lenders can ask for only six months.
- Shop around. Compare different lenders; you have options to choose from. You can lend from the bank or credit union, so make sure you compare them to find the best deal for you and your business.
- Gather the documents. Like with any other loan, you will be asked to provide the needed documents for qualification.
- Submit the application. Once you are done with all of this, it’s time to submit your application.
We gave you a brief rundown of what you need in order to take out a business line of credit, so if you decide to do it, make sure you contact your financial advisor for more help.
Who Offers a Business Line of Credit?
A business line of credit, or shortly BLC, is a credit that businesses can borrow from a lender in order to finance short-term operating needs. If you are in consideration of getting a business line of credit, you have a couple of options to choose from when it comes to lenders you can borrow the money from.
You can always choose the traditional way, like a bank or credit union. If you decide to go with these lenders, be sure that you have a good credit score and strong revenue if you want to work with them. On top of that, they only work with businesses that have been up and running for several years and more. Also, they can offer you secured or unsecured business lines of credit. The difference between those two is that a secured one requires collateral while an unsecured one doesn’t, but the lenders might require a personal guarantee. Another thing to mention is that they usually have higher fees.
If you, on the other hand, decide to go outside of the traditional way, you can find an online lender. They have become very popular over the years, and it’s very easy to get them. In comparison to traditional lenders, they are willing to work with start-up businesses or businesses that haven’t been around for long. The great thing about them is that you can finish the application online, and even if you have bad credit, you can still get approved. With that said, sometimes they have higher interest rates in comparison to banks or credit unions, depending on the amount you are looking to borrow.
With this said, we hope you do your research and contact your financial advisor for some more help in finding the best lender for you.
Is a Business Line of Credit a Good Idea?
A business line of credit can be a great way to get the needed funding to overcome the financial hardship your business has or to even expand it. We talked more about them and what they can bring to your business if you take one out.
It’s important to remember that even this type of loan has its own set of pros and cons, so weigh them out before making a decision. Even though we can’t tell you if they are a good idea for your business, we did explain how they work and what you can expect, but at the end of the day, you know what will work the best for your business.
So, before you get a business line of credit, make sure you understand what it brings, and you can always check with an online calculator how big your monthly payments and interest fees are going to be.
Here we discussed more in debt about a business line of credit, what it brings and how your business can benefit from it. They can be a great way to get the money you need to boost up or expand your business, but they do have setbacks as well.
Our advice is always to research, compare and shop around to find the best deal for your business and your finances. You can always turn to a financial advisor for more help in making the best decision.
In conclusion, we hope this article helped shine some clearness on what is a business line of credit and how it works.