A business line of credit is an excellent option for many businesses in need of funding. For those who are unfamiliar with a business line of credit, it is basically a certain amount of capital that your business can access. This capital will be provided by a financial institution. The amount of capital that you can access is based on the amount that is agreed between you and the financial institution.
How It Works
The first step to get a business line of credit is to contact your bank or financial institution. Once you have done that, you will be able to find out which business lines of credit are available for you. There will be an application process to become eligible and the amount of money you will receive from a business line of credit depends on the business revenues in the past years and projected annual cash flow. The credit is approved when the business has the ability to demonstrate debt coverage and substantiate positive cash flows in the previous years.
There are many benefits to utilizing a business line of credit when compared to other forms of funding that are popular among new businesses. One of the major benefits is that most lines of credit will not require collateral for the approval unless the credit score criteria of the applicant are not met. So, it is a great option for new companies who do not have many assets.
However, the best benefit that comes from a business line of credit is the fact that you will have access to money when you need it, whether it is for unexpected business expenses or to expand your business in order to grow. The main benefit of a business line of credit is the flexibility that it provides to companies to access the money when they are in need of it. Interest is not usually charged on the part of the line of credit that is unused.
The interest rates depend on the length of time in business, personal and business credit history. The startup fees and annual fees depend on the company you approach and the plan you choose. Missed payments can increase the interest rate.
The time to apply for your business line of credit is very important. It is always better to talk to your bank or financial institution in order to find out what are the exact requirements for getting one. Some banks will approve the credit if and only if you have been running the business for at least two years.
Of course, the first place you should always approach in order to get business line of credit is your bank. However, sometimes for different reasons, people will not be able to receive this type of funding through their banks, so you can also approach other financial institutions.