What is a Business Line of Credit?
A business line of credit is helpful for financing small businesses that require the necessary capital. It is a revolving loan that provides a fixed amount of capital, which can be used whenever the company decides to meet their needs. Some uses of a business line of credit include: covering business expenses while awaiting payment for products or services rendered, purchasing inventory prior to an anticipated busy season, or attaining quick cash for emergencies in any business. The beauty of a business line of credit lies in its flexibility, as a line of credit can be used for anything a business needs.
How does a Business Line of Credit Work?
Business owners will receive a loan of some total amount of money that will be available to them. They can draw a certain amount of money out of the line of credit, and use it to do whatever is necessary for their companies. Interest will only be charged once the business owner decides to pull money out. Once everything is paid off including interest, the business owners can decide to reuse the line of credit as often as they want, as long as payments are made in time and the credit limit is not exceeded.
Top 3 Things to Consider Before Choosing a Business Line of Credit
There are many important factors to consider before applying for a business line of credit. Here are the top 3 things that should be taken into account before choosing a business line of credit.
Secured vs. Unsecured
Business owners have the option of applying for two types of business line of credits: secured or unsecured.
- Secured Line of Credit
- Borrower puts up collateral as security deposit
- Favored by lenders
- In the form of property, money, equipment
- Unsecured Line of Credit
- Does not require collateral
- More expensive because it is more risky for lenders
Many lenders will typically look into different variables to see if the business fits the requirements of a business line of credit. Some variables include:
- Personal credit score
- Time in business
- Annual Revenue
- Strength of cash flow
It is recommended that businesses apply for a line of credit well before they actually need it. This is because lenders are more likely to accept a business if they are in great financial condition without any instability.
Before applying for a business line of credit, make sure that your business knows how the money will be used. By being organized with the money usage, businesses will be able to determine exactly how much money is required for their business line of credit. This will enable businesses to apply accordingly to their specific needs.
A business line of credit can be an extremely useful method for financing small businesses that are in need of some capital. However, it is important to consider the three things that were mentioned in the article. First, determine the type of line of credit that will be used. Second, look at the requirements and compare them to financials of the business. Lastly, have a clear idea on how much money that the business needs and apply accordingly to it. Here at Big Think Capital, our loan amount ranges from $10k-1M and the term of usage lasts anywhere in between 6 months- 5 years. During that time, our interest rates range from 7-25%. With an easy application process, and an exceptionally quick time to funding, Big Think Capital can provide your businesses with the best line of credits.