Everyone has that one dream business they would love to run. Whatever the idea, if the passion is there, you can make it work. Once it is up and running, you might sometimes need some cash to keep things going. A small business line of credit might be your best option. It is a great way to get fast cash if you have a restaurant and a large piece of equipment breaks down and needs to be replaced. Suppose you have a seasonal store and need extra money to restock some inventory during the slow times. Maybe you need funds for a new idea to help expand your business. These are just a few examples of why you might need money and need it quickly. Small business lines of credit have many different options, so you can decide what will be best for you. This can be a beneficial tool and the best choice for a small business in need of quick help.
A small business line of credit is like having a credit card with which you have a personal relationship. Things like personal loans and cash advances can have high fees and bad interest rates. With a line of credit, your essentially borrowing money from the value you already have. These lines of credit are much more flexible and easier to get approved. You can offer certain things up as collateral or borrow against your business itself—this a great way to get quick cash to be repaid in a short amount of time.
There are two types of business lines of credit.
With secured lines of credit, you will need to present forms of collateral to obtain. If the loan is not paid back, the collateral will be taken and sold off to try and repay the loan amount. Collateral does not have to be a physical object. For example, inventory and accounts receivable are often used as collateral. These loans are usually shorter-term and for more money.
Unsecured lines of credit are harder to receive because no collateral is necessary for you to receive the credit line. Unsecured credit lines may have a higher interest rate and may need a history of great business to receive. They are also usually lines used for less money.
There are several benefits to using a line of credit versus a regular bank loan or keeping a business credit card. It is encouraged that every business has an established line of credit available at all times.
You can control your money easier with a line of credit. Like a personal credit card, you can use a line of credit to purchase inventory, get a cash advance for payroll, or any other additional unexpected issues that may pop up.
It might provide you with extra comfort, knowing you can acquire a line of credit without having to offer up collateral. It is an excellent comfort not having the threat of losing something important on the off chance something goes wrong when trying to repay a line of credit. These lines of credit require higher standards but are still available.
If used correctly, a great benefit of using a line of credit is will drastically improve your credit score. In addition, this will allow for more significant purchases in the future for whatever you may need to help expand your business and take things to the next level. To improve your line of credit, you should consider paying borrowed funds back several times a year.
A business term loan is a lump sum of money that has a particular repayment plan. This can be used as a better option to get a more considerable amount but does not have the flexibility to dip in and out of like a line of credit allows. Also, keep in mind that the full interest is due on the original amount with a business loan. A business line of credit is a form of financing. It is flexible and easy to dip in and out of it. Just be sure to pay it back and full and that you do not go over your credit limit. This is usually for short-term loans and can be combined with long-term loans if necessary. This type of loan will also have lower interest rates than personal or business credit cards and transfer cash directly into your bank account.
Banks and credit unions will look at several factors . Some more than others, but for the most part, they will be looking for specific things that prove your business is profitable and that they will get their money back. Some things you might be required to show will include the following:
Am I Qualified?: The best way to know if you are qualified is to apply . But there are a few things you can check before applying to improve your odds of approval
Compare your options: Don't jump into a LOC just because you think you will be approved. Shop around and make sure you get the best rate, so you don't pay more than you need. Understand your rates and fees: Keep in mind that there will be fees and interest rates you will need to pay. Some of these include:
Get Everything Together and Apply: If everything is an order, you will most likely be approved. It is beneficial to the bank and you to keep these types of lines of credit open. Keep in mind that these types of credit banks' lines usually only deal with businesses that have been open for at least two years. The banks want to make sure you are already established. They are going to make sure it is a line of credit, not a rescue. If your business is newer than this, say only a year or so old, you will most likely be better off looking for an online lender. The interest rates will be higher, but they are known to take bigger risks and work with newer businesses. Either way, you should have plenty of other options if your business is new or something goes wrong with the application process. It is unfortunate, but you might have to build up a solid business before getting that line of credit you're looking for.
If it is possible, work with a bank that you have a relationship with. If you're a member of a specific bank or credit union, you have a history that could increase your chances of getting a great line of credit from that bank. This is one of those times where loyalty can be rewarded. A small business line of credit is something every small business owner should consider having. Not only is it great for your credit, but it can be there for you as a wealthy relative if you ever run into an emergency. There are more possibilities than you can count that might lead to a situation where you need money fast to keep your business up and running. How much comfort you must get having an established line of business credit available. So do yourself a favor and get a line of credit running today. Sources: How Does a Business Line of Credit Work? | Business.org Pros and Cons of Receiving a Business Line of Credit | Forafinancial.com Why Every Business Should Have a Line of Credit | Insureon.com The Perks of a Business Line of Credit | INC.com The Pros & Cons of a Business Line of Credit | Score.org Next: What You Need to Know About a Business Line of Credit | Ondeck.com How to Get a Business Line of Credit | Business Loans | Bluevine.com