Even if your business doesn’t need a large injection of cash all at once, you might find some things are financially out of reach, from time to time. If so, a business line of credit may be a great solution for you. With a form of convenient, flexible, ‘revolving’ capital, you can borrow the money you need, when you need it.
What is a Business Line of Credit?
When you have a business line of credit, you can borrow a certain amount of capital annually, just as with personal credit. You make payments only on the credit you've actually used. This can help you manage cash flow shortages or cover surprise costs until you have the funds. You won’t have a regular monthly payment schedule as you would with a long term or short term loan but there usually are minimum monthly payments required.
A business credit line can be secured or unsecured and it can be easier to get compared to other types of business loans. It should not, however, be used for long-term investments or major purchases. Businesses should be able to repay promptly as the interest and late fees can compound quickly with a line of credit.
How much can I borrow?
Rates, terms and limits for business credit lines vary. The interest rates on lines of credit are generally lower than those of credit cards, with higher limits. They are based on the bank or financial institution’s prime rate, plus a premium. Interest is charged as soon as money is borrowed, so a business can set up a line of credit as a safeguard, with incurring interest. There may, however, be a setup fee and an annual fee to keep the credit available.
The amount you can borrow is typically based on accounts receivable and current inventory but usually less than $200,000. A secured business line of credit typically comes with a higher credit limit and lower rates.
How does a business line of credit work?
Apply - You can get a line of credit through your bank and most national and regional banks as well as many larger credit unions offer business credit lines.
Get approved - Getting a credit line depends on your business’ creditworthiness and your personal credit history and score.
Tap into your funds - Draw down or withdraw funds on your line of credit any time to help your business grow.