How Easy Is It to Access a Business Line of Credit?



How Easy Is It to Access a Business Line of Credit?

There are many choices available for people who are looking forward to borrowing money. Borrowers can go to banks and other lenders to get their requested amount of loan based on some terms and agreement. Business line of credit is one such option, but it is not as common as other lending options.

Many small businesses are using lines of credit to meet their working capital requirements or for making long-term investments. Line of credit can be a good option in situations where a business needs easy access to cash with flexible terms of payback.

What Is a Business Line of Credit?

business line of credit

A business line of credit is very common among small businesses because of the flexibility and ease of access. A financial institution or bank provides loan to a business or an individual to meet any type of financial needs and repay it easily over a particular period. A line of credit is associated with interest which is charged after the money has been borrowed. To obtain a business line of credit, the borrower must be qualified and approved by the bank or the financial institution.

A line of credit is always revolving and doesn’t need any lump-sum for account creation. Just like a credit card, the line of credit is associated with annual renewal and credit review. The amount that you pay as the balance excluding interest can be borrowed again by the borrower. However, the lender can set a limit to the amount you borrow from a line of credit. A business line of credit caters to almost all the financial needs of a business and is helpful for a business in many situations.

What Are Secured and Unsecured Lines of Credit?

A business line of credit may be secured or unsecured, and you can choose any one depending on your requirements. Unsecured lines of credit may come with varying rates of interest and are available between the range of $10,000 and $100,000. If you want a line of credit for more than $100,000, you should go for a secured line of credit which requires a certificate of deposit.

What Are the Advantages and Disadvantages of a Line of Credit?

A business line of credit provides working capital when it is needed by a business and meets the requirement of many different types of funding needs of a business. The good thing is that a line of credit also accepts bad credit and provides a great way to make your credit score better. With a line of credit, you only need to pay interest on the amount you have already drawn.

However, there are some drawbacks to this type of borrowing too. A business line of credit may require collateral, and the rates for lower credit scores are also higher. Also, upon each withdrawal, you will have to provide updated and authentic documents.

How to Get a Business Line of Credit?

Getting a line of credit is easy, but you have to consider some factors before applying for it. A small business line of credit can be obtained from lenders such as online ones, a regional credit union, or a national bank. However, to get access to a line of credit, you must meet the minimum qualification requirements. Following are some tips to get easy access to a line of credit:

  • Maintaining a good credit score from the start of your business will help you get a line of credit. Maintaining a positive cashflow is a difficult task, especially when your business is a startup. This is because most of the cash is involved in payroll and operational expenses. Always remember to pay bills on time and maintain a good credit history.
  • It is always a good idea to apply for a line of credit when you don’t need it. Banks are ready to provide loans when you have a strong cashflow and you are not too desperate to get the money. Hence, if you’re in a strong position, this is the right time to apply for a line of credit.
  • To get an unsecured line of credit, your business must present a positive cashflow. This is because your business performance will be reviewed by the lender, who will also consider your credit history. A lender will give you money only if they are sure you can repay the money.
  • To apply for a line of credit, do some research regarding the lenders available. You can also get a good deal from an online lender instead of a traditional bank. If you need a small line of credit, you can consider applying at Kabbage, which has flexible and friendly lending options.
  • The last tip to get easy access to a line of credit is to start with a small amount. Applying for a smaller line of credit than actually needed will help you repay the amount and make payments on time.