Having a line of credit is crucial for business owners. You get the money you need to run your business and cover expenses, plus peace of mind and security. Being able to survive a tough situation without worrying about money can be comforting. You can use what you need and have a cushion with a business line of credit.
Business Line of Credit: What Is It?
A business line of credit works like a credit card or revolving charge account. Pay on time and only use what you need. As you repay, you’ll have more to borrow in an emergency. Quick credit you can use when needed. Not needed now? It’ll be there later.
How Much of a Line of Credit Can You Get for Your Business?
The credit line a business can secure varies widely based on factors like its financial standing, credit history, and the lender’s conditions. Generally, credit lines can range from $6,000 to $3 million, but the typical average in the US lies between $5,000 and $500,000, with common ranges from $10,000 to $100,000.
The repayment terms usually span six months to five years. Lenders assess a business’s profitability, credit scores, existing debts, and cash flow to determine eligibility and the credit amount. Secured lines of credit, backed by collateral, may offer higher credit limits compared to unsecured ones.
Business Lines of Credit—Unsecured vs. Secured
Business lines of credit are unsecured or secured.
Unsecured lines of credit don’t have collateral at the lender’s disposal. These are harder to get and have higher interest rates than secured lines of credit. If you lack collateral or don’t want to lose an asset if you can’t repay the loan, it’s excellent.
Interest rates are higher on unsecured lines of credit because lenders assume greater risk. Long-standing businesses with strong credit scores get cheaper financing rates than newer, less creditworthy ones.
A secured line of credit is backed by property or equipment the lender may confiscate if you fail. Compared to an unsecured line of credit, this minimizes lender risk and interest rates. You may lose collateral if you can’t repay the loan.
How to Use Business Credit Lines?
Lines of credit for businesses are versatile. You can buy new equipment, expand your business, pay payroll, or create a new product. Start paying after borrowing a set amount. You can borrow more if you need to, but don’t exceed your approved limit. You can receive another loan when you have the money.
When May Your Firm Acquire a Line of Credit?
Where you apply for a quick business line of credit determines how long it takes to approve. Banks and other traditional lenders may take five to seven business days to approve applications. Others that specialize in working capital loans may approve you in 24–48 hours. Working capital lenders are best for fast business lines of credit.
What Are Your Requirements?
Small business loans can only be given to people who have been in business for six months and have good to fair credit. Sometimes you need a 600 score. You must also provide proof of your business’s annual revenue and desired funding. You may need to provide personal information. A fast business line of credit is the best way to manage your business with peace of mind.
Requirements for Business Credit Lines
Business line of credit applications are similar to other financing options. Lender requirements vary, but many require:
- Good business credit: Most lenders require a good business credit score for a business line of credit. This usually results in a 670 or higher score, depending on the credit scoring model. Businesses with fair or no credit can work with some lenders.
- Financial statements: Income statements, balance sheets, and tax returns are needed to prove business revenue. To ensure your business can repay your LOC charges.
- Business hours: You may need to show your business license and opening date to lenders. Some require a one- to two-year business history.
- Collateral/guarantor: Some lines of credit require collateral (e.g., equipment, real estate, vehicles) or a guarantor.
If you need operating cash immediately, apply for a line of credit and have the necessary papers. In a few days, you may acquire company funding after applying and supplying supporting paperwork.
After learning what lenders look for when approving a business line of credit, review your options.