Business Line of Credit

A small business line of credit gives you flexible access to cash on an as-needed basis. This type of financing allows you to draw cash from your total credit limit for any business purpose – and only pay interest on what you use.

With a revolving line of credit, more cash will become available as you pay down your balance. Unlike selling equity, the funds from a business line of credit allow you to maintain business ownership, profits, and full control.

You can also use it to bridge cash flow gaps during seasonal slumps or as a rainy day fund. There are no restrictions on how you can use it – you can use a business line of credit to cover any costs or opportunities you face.

Wondering how to apply for a business line of credit? Well, different lenders have various qualifications, so whether or not you qualify can vary based on where you apply. The benefit of applying through a marketplace is that you can learn your options through a variety of lenders with only one application.

Banks and credit unions typically have more aggressive and demanding qualifications. If your business doesn’t have a spotless financial record, qualifying can be difficult. Even if your application is denied at a bank, you can qualify based on your annual sales at an online lender.

Online lenders are a better option for securing a fast business line of credit. With expedited underwriting processes, you can potentially receive your funds within 24 hours.

Marketplaces like National are less demanding, focusing on your business and opportunity over factors like history and credit. Applying and qualifying for a business line of credit can take some effort, but it’s not difficult or time-consuming through our marketplace.

Business line of credit application

As for documentation, here’s what you’ll need:

• Driver’s license
• Business bank statements (going back at least one year)
• Business credit score
• Financial statements
• Time in business
• Proof of ownership (K1, schedule C, EIN, certificate of corporation, etc.)
• Business tax returns
• Collateral (if secured)
• Cash flow statement
• Business plan

Some lenders require alternate documentation to determine your eligibility, but the above list is the most commonly requested.

Business lines of credit function like credit cards but with a different structure that’s better suited for small business owners. They’re also better for tax purposes – you can write off interest on a credit line but not for a personal credit card.

After qualifying for a business line of credit, you’ll receive a total credit limit. You can draw as much or as little as you need from that total limit in any number of installments, and you’re under no obligation to use the full amount.

This is done online, where you log into an account and transfer funds from your credit line to your business bank account.

You can continue to access additional cash as you pay it down. Instead of paying interest on the full credit limit, you’ll only pay interest on what you take. Depending on your lender, you may have a non-utilization fee and may have to pay for the line if you don’t use it. Before signing an agreement, be sure to ask for clear information about any fees. Avoid any agreements without clear, transparent information.

Remember – The “best” business line of credit is one that fits your business and where it’s headed. Make sure you work with a reputable, transparent lender to ensure that your financing fits your goals and won’t place any restrictions on how you grow.

Looking for a Large Business Line of Credit?

Unlike small business loans, revolving lines of credit work by allowing you to continue accessing additional funds as you pay your balance down and require more cash. In other words, it is a type of loan in which the user can borrow up to their credit again once the debt is repaid.

Some business lines of credit are revolving, while others aren’t. When you discuss the terms of your agreement, be sure to ask questions and confirm whether or not your line of credit is revolving. Revolving lines of credit are the fastest and easiest way to access additional cash as your business grows. Once you pay down part of the balance, you can draw more cash without reapplying. It’s simple, fast, and easy, and your working capital won’t be limited to your checking account.

For example, say you qualify for a $100,000 line of credit. You borrow the full $100,000 and use the cash to grow your business. You then pay down $50,000 using the revenue you generate, putting both your balance and credit limit at $50,000. With $50,000 paid down, you now have the option to borrow an additional $50,000. There’s no set end date, either. As long as you keep your credit line active or continue drawing and paying it down, you can utilize a LOC for months or even years. If you’re not actively using it, though, your small business line of credit may expire.

A top business line of credit option is one that has exactly what you need. If you aren’t satisfied with the first offer, don’t worry – there’s always a better deal out there.

A business line of credit can be a powerful tool in your back pocket. The flexibility allows you to draw funds whenever you need them and stay one step ahead of the latest challenge in your business – a priceless opportunity for any entrepreneur. Here are a few of the many benefits of leveraging a business line of credit in your operation:

• Fast access to cash
• Only pay interest on what you draw
• Might not need to offer collateral
• Manage your working capital, short-term projects, and other expenses
• Strengthen your business credit

A business line of credit for new businesses can change the way they grow. With flexible access to capital, you can build out necessary areas of your business without jeopardizing cash flow.

Term loans, SBA loans, and other traditional financing products provide you with a set amount of money that you must repay throughout the term outlined by your lender. If you wind up needing more than you originally anticipated, you’ll have to take out an additional loan on top of your previous financing, which can quickly become difficult to manage.

A business line of credit is a way around this challenge – the structure allows you to draw as much as you need from your total credit line without having to worry about taking out additional financing to afford your growth plans.

What’s the difference between a line of credit and a small business loan? Both provide your business with the cash you need to grow, but the way these products are structured is different.

When you apply for a small business loan, you receive the full amount you qualify for in one lump sum deposit. A line of credit, on the other hand, offers more flexibility than most loans and cash advances. Instead, you have the option to draw cash in increments and continue drawing more until you reach your credit limit.

Typically, lines of credit have lower interest rates and closing costs, which can make them more cost-effective. Small business loans are the better choice when you’re taking on a huge project with defined expenses. Lines of credit can be better as a flexible backup to cover unexpected costs or as a backup for your bank account.

Choosing a business line of credit over another financing solution could also help you save money on interest. If you were to secure a term loan to meet your needs, you’d have to pay interest on the total borrowed amount, whereas you only pay on what you use with a business line of credit. Plus, making consistent, timely payments on your credit line will work to strengthen your business credit score, which is a priceless opportunity that all entrepreneurs should take advantage of.

How to get a business line of credit? Check that you meet the necessary requirements, then reach out to the experts at National Business Capital to explore the options you qualify for.

A business line of credit can either be secured or unsecured. The difference depends on whether or not your lender requires you to put up collateral.

Secured Lines of Credit:

• Backed by collateral
• Higher credit limits
• Lower interest rates
• Lender can seize the collateralized asset if borrower defaults on payments

Unsecured Lines of Credit:

• No collateral necessary
• Higher interest rates
• Lower credit limits
• Difficult approval process

Some lenders require that borrowers put up collateral, such as real estate, receivables, inventory, equipment, or their home, as a method of protecting themselves from financial loss if the borrower defaults. However, putting up your home as collateral puts both your personal and business lives at risk.

For this reason, it’s usually not a wise choice. Backing your financing with collateral simply gives the lender confidence in the event you default. Years ago, it was difficult for a small business owner to qualify for an unsecured line of credit, especially through traditional lenders.

Through the new world of online lending, small business owners can qualify for multiple unsecured lines of credit options and compare rates. While they don’t require collateral, unsecured options may have slightly higher rates due to the lender’s increased risk.

By putting up collateral and opting for a secured line of credit financing, you may qualify for a higher approval. That being said, you can usually still qualify for a competitive unsecured line of credit based only on your annual sales – even with personal credit challenges.

Fundamentally, credit cards and lines of credit are similar – they give you the ability to handle expenses when you need to.

Both financing products only charge interest on what you use rather than your total credit limit, but the interest is structured differently. A business line of credit is the ideal option for your small business if you’re growing or solving challenges and you need a lower-cost solution.

Usually, only about 3% of your minimum monthly credit card payment goes toward principal. Over time, this can add up to be quite expensive. Lines of credit typically have lower interest rates and better amortization schedules. Overall, this normally adds up to a lower total cost.

Credit cards are primarily transactional, meaning you can only use them to make purchases. It’s possible to borrow cash using a credit card, but this can be expensive. On the other hand, lines of credit give you the ability to instantly draw cash as you cover expenses and manage working capital.

If you’re debating between getting a credit card vs. a business line of credit, you should also consider fees. Some credit cards involve hefty interest rates. In most cases, these costs will outweigh the draw fees you may or may not pay with line of credit financing. If you opt for a business line of credit, you won’t accrue rewards like you would with a credit card.

However, you can maximize the value of both financing options by spending with your credit card to accumulate rewards, then paying the balance down with a line of credit. Using both has its advantages, but you should make sure that you’re choosing the best business line of credit and credit card for your business and where it’s headed by weighing out your options beforehand.

Lines of credit are intended to be flexible financing options custom-tailored to your needs. You can use them to cover expenses that are weighing your business down or pursue exciting new growth opportunities.

There are no restrictions on how you must spend this money – you can put it toward any expenses. Some of the most common ways that businesses utilize this business financing option include:

• Grow Your Business – Ramp up your business and cover the expenses needed to expand hiring, payroll, take on new jobs, and more.
• Operating Costs – Always have cash on hand for rent, utilities, and other costs required to keep your business going on a day-to-day basis.
• Marketing Campaigns – Drum up new business and take on more customers with additional marketing campaigns in the mix.
• Seasonal Slow Periods – Get the capital you need to keep your business moving during seasonal slow periods.
• Inventory or Supplies – Purchase additional inventory or supplies to capitalize on busy periods and new opportunities.
• Payroll – Keep a reservoir of funding to cover the costs of payroll, especially with slow-paying clients.

Access to a line of credit is like having cash on demand. The second you need cash, you can draw from your line of credit and get things moving.

You may also have to provide a personal guarantee, which is standard with most types of business financing, and is similar to a personal guarantee you already have with your credit cards.

Most business owners prefer a line of credit over other options because of how interest rates are structured. Rather than charging on the total approval amount, you’ll only pay interest on what you take.

• Interest on Outstanding Balance Only: With a business line of credit, you only pay interest on the amount you’ve actually drawn, not on the entire credit limit. For instance, if you have a $100,000 credit limit and draw $50,000, you’re charged interest only on that $50,000.
• Flexible Repayment and Draw Periods: Business lines of credit usually have a draw period (the time when you can withdraw funds) and may have an interest-only payment structure during this period. After the draw period ends, repayment typically switches to include both principal and interest.
• Monthly Payments Vary Based on Balance: Since you can draw and repay repeatedly up to your credit limit, your monthly payments can vary. Interest is calculated based on your current outstanding balance, so your payment may fluctuate as you draw and repay funds.
• Revolving Structure: Some business lines of credit are revolving, meaning as you repay the principal, those funds become available for you to borrow again, similar to a credit card.

This structure allows you to keep your line of credit on the sidelines when you need it – without worrying about excessive interest.

Determining your specific interest rate isn’t as straightforward as the payment structure. Rates can depend on a number of factors, including your time in business, credit score, annual revenue, and the lender you’re working with. Still, that doesn’t mean you should settle for an interest rate that doesn’t fit your business.

You should apply with multiple lenders to ensure you’re getting the best deal available. If you apply for a business line of credit online, the application process is much easier than dealing with that of a bank or credit union.

Applying through direct lenders one by one limits the options you could potentially qualify for, while applying at a marketplace leaves the door open to several potential options, ensuring you find the best one.