Business Line of Credit
A business line of credit is suitable for the small business owner who wishes to draw against a predetermined credit limit as needed, rather than taking out a traditional small business term loan that involves receiving the entire principle up front, thereby immediately incurring higher interest expenses.
The flexibility afforded by a business line of credit makes particular sense for the business owner who can prudently manage finances while maintaining visibility for working capital and financing needs.
Additionally, with a business line of credit, as borrowed funds are paid back, the available credit line expands to reflect the payments made against the debit balance, providing the business owner with an ongoing revolving line of credit that is not characteristic of a small business term loan.
Why Use a Business Line of Credit?
A business line of credit can function in a similar manner as an unsecured credit card does to the individual consumer – it can be effectively utilized when unexpected expenses or short-term cash flow constraints arise. A business line of credit should not be used for large-ticket purchases such as equipment or real estate (a traditional small business term loan makes more sense here), nor for managing everyday operating expenses on an ongoing basis.
However, for temporary short-term working capital needs such as making payroll during a seasonal slump or meeting expenses when receivables are piling up and cash is scarce, drawing on a business line of credit provides a welcomed measure of security and flexibility.
Other instances when a business line of credit comes in handy include when unique discounted purchasing opportunities arise that can save a business significant money on its cost of goods sold (a wholesaler in the process of going out of business suddenly offers bulk purchasing opportunities during a fire sale), as well as when unexpected emergencies and/or costly equipment repairs arise.
Applying for a Business Line of Credit
Business lines of credit are available from traditional lenders such as banks, as well as from a number of online lenders. Though banks generally provide lower interest rates and more attractive terms than online lenders, the application process at a bank is more time consuming and requires more documentation that must meet stricter qualifications than those at an online lender.
Regardless, all lenders will examine business credit scores (and sometimes personal credit scores), the amount of time the business has been operating and its level of revenue, along with its ability to pledge short-term (accounts receivables) and/or hard assets (equipment, real estate) as collateral in the event of default.
It is not uncommon to see business lines of credit up to and exceeding $100,000, and in the case of banks that offer SBA Caplines Credit, limits can run as high as $5 million for those small businesses who meet the high qualification requirements.
When To Apply for a Business Line of Credit
The best time to apply for a business line of credit is when the business credit score is strong and revenues are growing – even if the business may not need the credit line at that moment! Remember, with a business line of credit, interest expense accrues only when funds are drawn down, therefore maintaining an open credit line with no balance costs absolutely nothing.
However, it’s when things are going well with a business that lenders are most comfortable and interested – so, ironically, the best time to apply for a business line of credit is when a small business owner doesn’t really need it. However, once secured, the business line of credit can prove highly useful in the future when the need for capital arises.
Online Lenders and Business Lines of Credit
There are a number of online lenders who offer business lines of credit that can be secured in a more rapid manner than those available from traditional banks. Consult articles on this website related to Everest, OnDeck, Quarterspot, Kabbage, CAN Capital and LoanMe for further information related to general qualifications, terms, and the application process associated with their respective business lines of credit.
Interest rates charged by online lenders (APRs often exceed 20% and in some instances run substantially higher) are greater than those charged by traditional banks, but the application process is far less time consuming and the qualifications less strict, often resulting in a business line of credit being awarded within one day of the application filing.
For those small business owners who did not plan ahead and secure a business line of credit when business operations were strong, or that are suddenly facing unexpected expenses, or that simply have respectable qualifications but won’t quite meet the standards required by a traditional bank, pursuing a business line of credit with an online lender can make the most sense.
Are you in debt? we can help
Time and again, I did not know how to handle my debt
Time and again, I did not know how to handle my debt. Even when I paid my credit cards off, a few months later I was back in the same situation. But this year is different. I contacted United Settlement...
Business debt relief is what I needed when I contacted the United Settlement crew
Business debt relief is what I needed when I contacted the United Settlement crew. They are committed to helping people like me who requires more help with business debt problems. I had several loans out...
Student loan debt was the reason that I reached out to United Settlement
Student loan debt was the reason that I reached out to United Settlement. I had about 200K plus in student loan debt for my business degree. I recognized that I had to do something when I struggled to make...
There is nothing worse than falling ill and then having to deal with super expensive medical bills
There is nothing worse than falling ill and then having to deal with super expensive medical bills that you really do not have the patience or experience to handle. I was pleased with my experience with...
I took out a few personal credit cards to open my boutique
I took out a few personal credit cards to open my boutique. When than money ran out, I went on to take out more loans for my business. However, this quickly turned into a disaster. Today, I now have a mountain...
Who knew that auto loans were so negative for your credit lines
Who knew that auto loans were so negative for your credit lines? Especially, if they are not paid off right away. As a married couple, we had vowed to keep auto loan debt at bay. But, we found ourselves...
I didn’t have a ton of debt when I contacted United Settlement
I didn’t have a ton of debt when I contacted United Settlement, but what I wanted from them was some information about how to handle my debt management. I knew that I needed some more information to get...
Federal student loans were the reason I ended up at United Settlement
Federal student loans were the reason I ended up at United Settlement. I had about $200K to pay back and I was not quite sure where to tackle that debt once I got out of school. But I reached out to that...
Everyone knows how horrible student loans are
Everyone knows how horrible student loans are. For me and my family, they had become more than just an annoying monthly bill. They had taken over our lives. That’s why I decided to take action and find...
I wanted to be more informed about my own personal and business debt
The number one reason I chose to contact United Settlement was I wanted to be more informed about my own personal and business debt. When you have credit card debt, it can be extremely frustrating. Especially...
I cannot believe I was finally able to find a company to actually help me pay off my debt
I cannot believe I was finally able to find a company to actually help me pay off my debt! I thought I would forever be chained to debt. But United Settlement offered me multiple solutions for paying off...
What your money can do for you.
The great reviews that you have thanks.
Dealing with high interest auto loan debt was difficult for me and my wife
Dealing with high interest auto loan debt was difficult for me and my wife. We thought we got a good deal, but it actually was a horrible loan. So, we reached out to United Settlement, and they got to work...
No one really wants to go bankrupt, and neither did my family
No one really wants to go bankrupt, and neither did my family. But fortunately, we did not have to go that route. It was our last resort, but United Settlement helped us figure out a way around bankruptcy...
I had been through about 5 different credit counseling agencies before I found United Settlement
I had been through about 5 different credit counseling agencies before I found United Settlement. I had read through their reviews and made the decision to move forward with them. I also was so impressed...
Save time and money
Just what I needed, already had a company I was working with and I switched because I was able to same some money. Brian and Alfred were really nice and helpful
As a business facing some unwanted financial difficulties
As a business facing some unwanted financial difficulties, we were at a loss for what to do next when our debt started to soar. We took a closer look at our financial situation by contacting United Settlement....
I had no clue how to create a debt management plan
I had no clue how to create a debt management plan and in fact, I didn't even know what a debt management plan was. Fortunately, I reached out to United Settlement before I had too much debt to tackle....
Being burdened by debt is one of the biggest struggles we faced as a family
Being burdened by debt is one of the biggest struggles we faced as a family. But these people at United Settlement were very helpful in deciphering the different debts we had and then coming up with a debt...
Student loan debt was my worst enemy before I ran into United Settlement
Student loan debt was my worst enemy before I ran into United Settlement. I really thought I would just have terrible credit for the rest of my life because I will never get out from underneath it. It was...