FAQs: Business Lines of Credit

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Do you have interest in securing a business line of credit? Could this be one of the better financial moves you make for your company? Have you begun to consider the pros and cons of moving forward?

When it comes to a business line of credit, there is a lot you need to know. Here’s why: the decision you make today will impact your company well into the future.

It all starts with knowing your business credit. Once you know your credit score, as well as where things stand in regards to your current and past debts, you can make an informed decision on what you should do next.

Here are some frequently asked questions associated with a business line of credit:

1. What exactly is a business line of credit?

This is a form of flexible revolving capital that works in the same manner as a credit card. The primary difference is the ability to access cash, as well as a lower APR in many cases.

With a business line of credit, you don’t have to use the money that is available to you. Instead, you can take what you need, when you need it. This way, you aren’t paying interest on the entire amount, like you would with a traditional or SBA business loan.

2. What does it take to qualify for a business line of credit?

This depends on the lender, but there are a couple things you need to know:

       You typically need annual revenue of $50,000+

       Your business should be a minimum of six months old

Again, the eligibility requirements vary from one lender to the next, but these are just a couple things to keep in mind.

Note: your business credit score is also important. If there is anything you can do to boost your score before applying, make sure you take advantage.

3. What is the maximum loan amount?

Every lender is different in regards to its minimum and maximum amount for a business line of credit, with most starting somewhere in the $10,000 range.

On the high end, however, don’t be surprised if you come across lenders that offer as much as $1 million.

It’s difficult to say how much you will qualify for until you complete an application and begin to discuss your options with the lender.

4. What is an average interest rate on a business line of credit?

There is no easy answer to this question, as it depends on the lender and your company’s financial situation.

For instance, if you have a high business credit score and a long history of paying your bills on time, your company will qualify for the lowest possible rate.

On the flipside, if your credit score is less than ideal, a higher rate is necessary in order to protect the lender.

Generally speaking, you can expect a rate somewhere in the 7 to 25 percent range.

5. How long does it take to move through the process?

This is based largely on how fast you move in regards to completing an application and sharing the necessary information with the lender.

If you’re on the ball, you may receive an approval in as little as one day.

6. What are some of the drawbacks associated with a business line of credit?

There are many benefits of this type of financing, but there are also potential drawbacks. These include but are not necessarily limited to:

       Higher interest rate if you have a low credit score

       Some lenders require collateral

       You may need to provide documentation with each withdrawal

These drawbacks don’t always come into play, so you’ll want to discuss them with your lender before making a final decision.

Conclusion

For some companies, a business line of credit is just what they need in order to improve their financial outlook.

If you think this could do big things for your business, it never hurts to learn more. You may find that it makes perfect sense based on your current financial situation.

What are your thoughts on a business line of credit? Do you understand the pros and cons associated with this form of financing? Do you have any direct experience? Share your thoughts, guidance, and advice in the comment section below.

 

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