A business line of credit is more flexible than a regular business loan. When given a line of credit you can borrow up to a certain limit. Then you pay interest only on what you borrow, not the credit limit. You can draw and repay funds at your discretion as long as the interest accrued doesn’t push you above the credit limit. It is similar to how a credit card works. Lines of credit can help you with cash flow or to buy inventory or to put a fire out.
How Business Lines of Work
A term loan is one amount of cash that is repaid over a fixed time, but with a line of credit you can reuse and repay it for as long as you like as long as you make the payments on time and don’t exceed the credit limit. Lines of credit can be as low as $1,000 and sometimes as high as $500,000. Lower lines of credit are usually unsecured (no real estate, inventory, etc. needed).
How To Qualify For a Business Line of Credit
Most lenders want businesses to have revenue and at least a couple years of credit under their belt. The larger the line of credit, the more likely that collateral will be needed. Collateral can be taken by the lender if you can’t make your payments. Most lenders will want personal and business tax returns, bank account information, and business financial statements. Online lenders will have looser qualifications and lower credit requirements than more traditional lenders like banks but in exchange may charge a little more interest. Plan on needing to show at least 6 months of your records and more then $25,000 in revenue to qualify for a business line of credit.
What You Need to Know Before You Apply
- Know Your Business – The key to a successful loan application is to know your business and know how the capital will help you grow and accomplish your goals.
- Know How You’ll Use the Funds – Be strategic about how you’ll use the funds. Take the time to make a plan for how you’ll pay them back and don’t borrow more than you need.
- Know Your Financials – Take a deep look into your finances. Look at your profit and loss. Be sure you can afford the payments on whatever funds you borrow, for the full term of the loan. Know what you’ll do if something goes wrong while you’re still paying off the loan—what is your backup plan?
- Know What Your Business Will Look Like After You Get the Funds – Make sure you’re applying the funds where they’ll have the most impact on your revenue.
Lendio’s Business Line of Credit Option
Think of a line of credit as a soft, cozy financial cushion for your business. It’s there if you need it, but you’re not required to use it. If you have a credit score of 560 or higher, you’ll probably qualify for a line of credit.
Loan Amount: $1,000-500,000
Term: 1-2 Year Maturity Date
Payment Frequency: Monthly
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