Business Line of Credit

A business line of credit makes money available for ongoing or short-term expenses. It gives you that extra bit of money you need to grow your business.

A business line of credit is designed for you to tap to when you need it to meet your short-term working capital needs. For example, you might use it to pay operating expenses or for inventory purchases.

There is a maximum amount that you can borrow. Once you hit that maximum, your access to additional capital ends. A business line of credit is a better option than just putting expenses on credit cards because the line of credit interest rate is typically much lower than credit card interest rates.

A business line of credit is one of the most common forms of financing offered by institutions. Generally, loan and collateral guaranties are not required for approval unless the applicant's basic credit criteria is not met. In financial terms, that means it's an unsecured loan. In some cases, however, line of credit facilities are secured by the assets of the company.

How Do I Get a Business Line of Credit?

Getting a business line of credit involves completing a financial application. You will need certified business and personal tax returns for the past three years, personal statements and other supplemental information. These documents should be ready prior to the submission of an application.

The amount of the business line of credit will depend on your firm's historical revenues and its projected annual revenues and cash flow. Generally speaking, a positive cash flow is required to get a business line of credit. Your business has to be profitable and you need to demonstrate that the debt can be repaid on a regular basis.

Once you get a line of credit, you can borrow up to the maximum amount approved. This may be done in one lump sum or incrementally.

A business line of credit is usually a revolving loan and therefore will have no fixed terms. The repayment terms may simply require that monthly interest payments to be made.

Typically, a business line of credit will require full payment (principle and interest) of the amount drawn prior to the maturity date. The business may repay any amount borrowed and re-draw funds as needed without exceeding the authorized amount.

If you can get a business line of credit from your bank, it's a good idea to get it even if you don't need the money now. You never know when you might need some working capital.

Resources: Business Line of Credit

When you're in the market for business financing, determining what kind of loan you can qualify for is the first step.

Q: Can I get a business loan? What kind should I apply for?

A: Most entrepreneurs need to borrow money at some point. The good news is, there are many different loan programs. Unfortunately, that's also the bad news. In other words, the money's out there, but it can be confusing to decide which loans to apply for, especially because many loans fund specific things. Here's a quick breakdown of some common loan types.

Line-of-Credit Loans: These short-term loans let you access a specified amount of money that's deposited into your business checking account on an as-needed basis. You pay interest on the amount that's loaned to you. Line-of-credit loans can be used to buy inventory and pay operating costs for working capital, among other things.

Resources: Unsecured Business Loans

Good credit is the lifeline of your business. It enables you to obtain funding for things like expansion, capital expenditures, research and development, and staffing. It is the principal contributing factor to your business's future growth, not to mention the cash necessary for survival.

Good business credit also allows you to keep the cash you have to cover your cost of doing business; such liquidity lets you respond quickly to time-sensitive requirements, without halting or compromising operations. Specialized business credit companies like Experian can help you establish, monitor, improve, and protect your business's credit.

Remember, it's not just about getting access to financing; business credit has increasingly become the primary vehicle for setting terms on business loans, determining insurance premiums, even setting lease payments. Good business credit can earn you lower rates, strengthening your cash flow.

Resources: Business Line of Credit