It is common for business owners to deal with cash flow fluctuations or require immediate funding to cover unexpected expenses. Additionally, some owners are presented with time-sensitive business opportunities that require swift action. In cases like these, when funding is needed promptly and without delay, a business line of credit is the ideal solution. This flexible financing option allows business owners to access funds as needed.
If you want more information about a business line of credit, including how it works and how to apply, read this Huddle Business Capital blog article.
What is a business line of credit?
A revolving business line of credit is a popular financing option that provides access to a fixed amount of funds for various business purposes. It works like a credit card, with an established limit and the ability to borrow up to that limit. You pay interest on the funds you draw, and once you repay the used funds, the line of credit replenishes and becomes available for you to borrow again. It is worth noting that if you don't draw from your credit line for a specific period, you won't need to make any payments for that time frame.
Secured vs. unsecured credit lines.
If you are interested in getting a business line of credit, you should become familiar with the two available types: secured and unsecured. Secured lines of credit typically offer lower interest rates but require collateral, such as business assets and inventory. On the other hand, unsecured lines of credit don't require collateral, making them a viable option for businesses without significant assets. However, unsecured lines generally come with higher interest rates due to the increased risk for lenders.
Using a business credit line.
A revolving business line of credit is good for business owners who want short-term, on-demand funding for many business needs. These include managing cash flow, paying bills (e.g., office rent, utilities), purchasing inventory and supplies, covering expenses, investing in marketing and advertising, and taking advantage of growth opportunities. A line of credit is also advantageous for cyclical businesses that experience fluctuations in demand and revenue and require off-season funding.
How to qualify for a credit line.
Lenders that offer business credit lines have their own approval requirements, but they all consider business credit scores, time in business, and monthly revenue. A higher business credit score will improve your chances of being approved, as will at least two years of operational experience and a solid monthly revenue history. It would be best to begin by researching potential lenders and comparing their terms, interest rates, fee structures, and credit line limits. Once you choose a lender, gather the necessary business documents and submit your application.
Where to get a business credit line.
You have myriad choices when it comes to getting a business credit line. Many national and regional banks, credit unions, and nonbank lenders offer credit lines to their business customers. Here at Huddle Business Capital, we connect business owners with revolving business credit lines from a top-tier lender we work with. Plus, we put your convenience first with a simple online application, one-hour credit decisions during our regular business hours, and fast funding.
A credit line can boost your credit score.
Taking out a business credit line and using it responsibly can improve your credit score over time. This is because having a credit line demonstrates that you can manage and repay credit successfully, which can positively impact your credit score and open the door to business funding with favorable rates and terms in the future. Moreover, a credit line can help you maintain a lower credit utilization ratio, a critical factor in credit scoring. You're showing financial prudence by having access to credit without necessarily using it during certain times of the year.
Making timely payments is essential.
Once you establish a line of credit for your business, you must repay what you draw when it is due. On-time payments demonstrate financial responsibility and can prevent the accrual of late fees and interest charges, ultimately saving your business money in the long run. If your line of credit is secured, making timely payments will protect your collateral from being seized if you default.
Disclaimer.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.
