Every small business owner is working hard towards growing its business and creating positive net cash flow. At times, they need rapid access to cash resources along with flexible payment of the borrowed loan. For that, an unsecured line of credit will be the optimum solution referred to as “business line of credit”.
What is a Business line of credit (BLC)?
It’s basically a small business loan that is more flexible and convenient than a regular loan. The consistent flow of cash is used to pay the daily working expenses like wages, utility bills or invest in projects that bring progress. BLC allows you to manage crises and investments equally so you can safely manage your best cash flow. This means that a line of credit is a small business loan that offers expected flexibility. Such flexibility will not be available on a regular business loan. You can borrow a certain amount using your company’s credit line. For example,
$ 100,000 and only pay the interest on the part of the money that you have borrowed. You can then withdraw and pay until your credit line exceeds. BLC also acts as a credit card.
Small business loans are more closely linked to small business credit cards than small business loans. Like loans for small businesses, unsecured lines of credit allow companies to finance any business expenses. Unlike small business loans, in BLC, you do not have to make a one-time payment when you open an account. However, you do have to make monthly payments later. The credit limits of small businesses should be reviewed and renewed every year as a credit card. The concepts applied are just like a credit card. For example, when you withdraw money, interest accrues, and you can pay your balance (excluding interest). Like credit cards, lenders limit the amount you can borrow. Consult a banker to know how to get a business line of credit? In case you are starting up your small venture.
1. How to Get a Business Line of Credit?
A business credit line is different from a regular term loan. A term loan is a single cash payment that can be paid within a specific period. With a line of credit, you can still repay and reuse it as always as you would prefer. This could be performed as long as you pay off the unsettled debt in time and do not surpass your credit limit. Most lenders allow you to pay your balance in full to save interest. In BLC, credit limits vary from $ 1,000 to $ 250,000. This range is smaller than the regular term loan.
A business credit with a lower credit range is generally not guaranteed. In other words, it means there is no need for insurance, such as real estate or inventory. You can apply for and receive the BLC from other banks or lenders online. Moreover, with this product, you can get a certain amount from the bank, a fixed payment period, and a fixed interest rate. Besides, one of the biggest advantages of having a BLC is its flexibility. You can raise money whenever you need it and pay it without having any strict deadline. Therefore, the product can meet a variety of financial needs, including working capital, cash payments, stock purchases, and others.
2. Kinds of BLC
In this context, it is important to remember that there are different types of credit lines available. These categorize include short and long-term credit lines, current and non-current BLC, and secured and unsecured BLC. Each category affects the type of credit being offered to the small business.
3. Top Three BLC Choices
We have so far reviewed the credit limits, its types, and the comparison of this product with term loans and credit cards. You should have a deeper understanding of how the line of credit works. In general terms, we will also explore the best ways to get a real line of credit. Multiple banks offer credit facilities along with the best terms and interest rates. However, the real problem is that qualifying for one of these products is certainly more difficult and time-consuming. Thereby, if an individual cannot qualify for BLC, there are other better alternatives to consider. The first one is ‘Kabbage’ It is a convenient short-period credit line with rapid finance and no requirement of minimum credit score. The second one is ‘BlueVine’ it is similar to Kabbage as it is best for a short-period BLC. It is most suitable for new organizations or for those who are unable to qualify for other credit lines. The last one is ‘Fundation’ it is best for a medium-term credit line and suitable for more qualified defaulters.
4. What is needed to Qualify for BLC?
Most traditional financiers, for instance, banks, require companies to have a steady income source. Together with that, they also require that companies must have a good credit history. Larger lines of credit may require a guarantee. However, if you do not pay, the lender can seize it. There are papers that the lenders often require before qualifying for BLC. The business and personal tax returns are the crucial ones to be needed. Along with accurate bank account data, the financial statements are also needed. Examples of these include the balance sheets and the income statement.
Furthermore, internet lenders possess average qualifications when compared to typical banks. However, these lenders may charge higher interest rates than banks and credit limits may also be lower. A business credit line requires a company to have at least six months of work experience in the market. Besides that it also requires the company’s annual sales to be a minimum of $25000 to qualify for the BLC. Minimum credit score does not required for some lenders. But few creditors are likely to ask for a score of 500 or more to qualify.
In conclusion, BLC permits you to manage crises and opportunities equally so you can safely manage your best cash flow. It depends on you how you are managing your business. The small business loan is very advantageous for a person starting up a small venture. As he needs working capital to pay off the wages, utility bills, and other expenses. Moreover, you also have to see how much earnings per year the entity is generating. If these are under the criteria of the BLC, then you will get easy access to the business loans. Just remember to assess what type of BLC you need then contact your trusted banker to guide you through the details. Hopefully, with the help of the above tips, you can easily qualify for a BLC that suits your business needs.