Business Lines of Credit: How Do They Work?
A line of credit operates in the same way as a credit card. Using a line of credit means that you can draw funds when you need them and repay them later over a period of time. You can continue to use and repay your line of credit as much as you want, but only if you continue to make payments on time and don’t go over your credit limit. Of course, you will have to pay interest on the amount of money that you borrow, but you can usually repay your full balance early and save on paying interest costs. It is important to differentiate business lines of credit from term loans. Indeed, the latter provides you with a lump sum of cash and has to be repaid over a fixed term.
How Can You Get a Business Line of Credit?
Business lines of credit are often issued by banks and online lenders. Interest rates and borrowing limits may vary depending on the lender’s requirements and the borrower’s circumstances. Some minimum requirements include being in business for at least six months and having a minimum annual revenue. Certain lenders set a minimum credit score, so you will probably need a score of 500 or higher to qualify.
When applying for a business line of credit, you will need to provide personal and business tax returns, bank account information, business financial statements, and to sign typically required documents. However, your privacy will always be protected. You should note that obtaining a more significant line of credit may require collateral. In addition, SBA lines of credit also have strict requirements, while online lenders usually have less stringent qualification requirements than traditional lenders. Once you have approval, you may be issued a business line of credit in a few days contrary to banks that usually take longer.
Business Credit Card vs Business Credit Line
They may seem very similar, but business credit cards are still different from traditional business lines of credit. For instance, a business line of credit provides a higher credit limit and deposits cash into your bank account. Business credit cards are well suited for smaller recurring expenses and for newer businesses who don’t have established finances. Nevertheless, a business line of credit is best for more established businesses with more recurring considerable expenditures.
Do you still have questions? Feel free to contact career professionals at Blursoft who can help answer any questions you have about business lines of credit and how to apply.
