Business line of credit offers flexibility in borrowing capital that other business loans don’t provide. With a business line of credit for small business, you can borrow up to a certain amount and pay interest on the actual portion of money you borrow. You can withdraw and repay funds as much as you want. However, you have to make sure that you don’t go over your spending limit. You also have to ensure that you do repayments on time. Almost all lenders will allow you to repay your balance in full at an earlier time so that you can save on interest costs.
Both banks and alternative lenders offer lines of credit for small business owners. In this article, we discuss how can you make a business line of credit work for you, and how can you be eligible for it. We tackle all details about getting a line of credit here.
What is a business line of credit?
A business line of credit allows entrepreneurs to get funds quickly and inexpensively. You can get access to a certain amount of money, and only pay interest on what you actually use. However, a line of credit usually has lower borrowing limit compared to traditional term loans. A business LOC would usually have limits ranging from $1000 to $250,000, which is smaller than a bank loan.
There are also business lines of credit which are secured and unsecured. For those lines of credit that require no collateral, they would usually have lower credit limits.
This type of financing solution is essential for business owners because it provides a sufficient cash flow for running and growing a business. It’s similar to a business credit card or personal line of credit, but for business owners to tap into with the perks that come along with it.
Benefits of a business line of credit
- Easy and Flexible Way to Get Funding
Unlike traditional loans which provide you with a lump sum of money, a line of credit allows you to get just the right amount of funds you need at the moment. You have control over how much money you’ll take and when you’ll get it. You will only pay interest on the amount used.
You are free to use the funds from a line of credit in whatever way and whenever you need it. It gives you the flexibility to put the money when and where it is needed the most. Some business loan applications would require you to be specific as to where you’ll use the money. With a line of credit, you can use the money for whatever purpose without being strict as to where you should use it.
The flexibility in using and repaying funds gives you room to implement business strategies You don’t have to worry about cash flow because a line of credit can give you immediate financing. In a way, it can influence you to make better decisions because capital is given for your business to grow.
- Revolving Credit
A line of credit is also referred to as revolving credit. You can tap into it over and over again as long as you are diligent in repayments.
A lender will offer you a certain amount of capital for an unspecified period. As you accomplish the repayments, you get access to those funds again. This ability to continually obtain funds helps grow your business. You have the freedom to make growth-based decisions, while turning that capital into income-generating opportunities.
- Be in Control of Your Business
Getting a business line of credit also helps you stay on top of everything. It avoids the tendency of you relying on investors from controlling your business. As lines of credit offer the capital you need, you’ll have better control over your company’s finances and management. Even if investors will come in at some point, you’ll have the upper hand on your business at the start if you opt for a line of credit.
- Never Miss Opportunities for Business Growth
What makes a business line of credit incredibly powerful is that you have the opportunity to get capital when there’s a window of opportunity for growth. You can’t just wait for your cash flow to come in for you to finance a venture. A line of credit can give you the capital needed now and repay it when conditions are more favorable to you.
- Lower Interest Rates
Lines of credit in the market nowadays usually follow a prime lending rate, which doesn’t fluctuate over time. It is also much lower than the interest rates charged by credit cards.
As long as you always pay on time, interest rates in lines of credit will stay low for you to get more access to funds. Paying promptly will also give you cheaper access to capital and higher credit limits.
- Financing When Cash Flow is Tight
Maintaining a line of credit is your back up when you need to pay for contingencies. You’ll get the funds needed to continue running a business, even if sales are not good at the moment. It evens out cash flow during slow months to keep your business afloat. A line of credit will also prevent you from asking money to your family and friends. It gives you the responsibility of having cash on your own, and not be in debt to the people close to you.
A business line of credit will also help you tap into a source of funds quickly, especially for short-term needs in business. You don’t want to stop a project short because you’re low on funds. You also don’t have to scramble for money when it’s time to pay contractors, repair broken equipment, or inject capital to make up for clients who pay late. Having a line of credit helps you stay ahead without stopping due to finances.
- Flexible Payment Scheme
Another key advantage of lines of credit is that they have more flexible repayment options. You can pay a bigger part of the balance when cash flow is good, and pay off the minimum required when profits are slow.
It is advisable though that you use a line of credit for short-term business needs. If you use it for long-term investments, it might be difficult to catch up on repayments. Set clear rules as to how you’ll use the line of credit in your daily operations. Create projections as to how you can make the most out the credit, and then repay the loan with the income generated from those funds.
- Build Up Your Credit History
Lines of credit help you establish a positive credit history, so that you can apply for bigger financing in the future. It also gives you the opportunity to raise your profile as a reliable borrower. Lenders and investors will eventually see you as someone they can entrust capital to. With a line of credit, you can continually build yourself up as a business owner, improve business finances, and drive tremendous growth for your company.
Whether you have a good or bad credit score, you can still get a loan from lines of credit. However, if you have a not-so impressive credit score, lenders will charge higher interest rates to mitigate their risk.
Take this opportunity to build up a good credit score so that interest rates will be given in more agreeable terms. As you build up good credit, and be prompt in your credit repayments, you’ll be able to access lines of credit without much fuss.
Why it is important to small business owners in the UK
Lines of credit are still a must-have for business owners. The ease and flexibility of accessing funds at a short notice make lines of credit a viable option for Australian business owners.
At some point in business, you’ll have to get access to funds for contingencies, make cash flow available, and push your company’s growth. You may not be able to rely on your finances alone during slow seasons, that’s why getting a line of credit can be extremely helpful in covering business costs at the moment.
There are also options for a business line of credit for startup. It may require less documentation compared to secured lines of credit, but lenders can charge higher interest rates for it. This can be the same for a business line of credit for new business. To lessen the chances of getting higher interest rates, make sure that you follow through with a good credit score and show documentation of good cash flow every month. The next section shows how you can be eligible for a business line of credit.
Business line of credit requirements
Most financial institutions would require businesses to have the following before they can be approved for a line of credit:
- Have a strong revenue during the years in business
- Have at least a few years of business history in order to qualify
- Larger lines of credit may require collateral (personal, business, or real estate property).
When you finally apply for a business line of credit, these are the usual documentation required:
- Personal and business tax returns
- Bank account information
- Business financial statements (such as balance sheet and profit-and-loss statements)
The common standard for lenders to qualify you for a line of credit is that you should be running the business for at least six to eighteen months and have at least $25,000 annual revenue. Other online lenders may have looser requirements and can give you a line of credit which is perfectly suited for your needs. Know more if you can qualify for a line of credit here.
How to Get a Business Line of Credit Loan
Step 1: Application
Applying for a business line of credit usually requires financial statements, tax returns for business and personal purposes, bank account information, and other business documents. The lender will also have to ask questions about your business. If you have a good credit history, you may be eligible for lines of credit with lower interest rates.
Step 2: Approval
Once approved, you’ll be offered a line of credit. If you get your line of credit from a bank, it may take a few days or weeks to get approved. On the other hand, there are online lenders which can get your financing available within 24 hours.
Step 3: Drawing Down the Funds
Once you get financing, you can draw down your credit line. In some instances, lenders will create a separate business loan that has the same interest rate. Your line of credit may be available for 1 to 3 months, or any time according to the loan terms. You can withdraw as much or as little as you need.
Step 4: Repayment
Your line of credit loan can be repaid monthly, which can be covered within 1 to 24 months. After the first month has elapsed, you can repay your loan early without penalty. When you pay the loan back on or before the payment deadline and don’t go over the credit limit, you can still enjoy lower interest rates.
Once your credit line expires, you can request a rescore. Lenders will assess your information and determine if you are eligible for a larger amount of financing.
In a Nutshell
Securing a business line of credit really does come with a lot of benefits. Just like with other types of business loans, it’s important to manage this source of funds wisely. You cannot overindulge when you get the money offered by a line of credit. It will become difficult for you if your expenses go overboard and you can’t follow through with the credit repayments. As long as you use it carefully and strategically, you can fund your short-term business needs and grow your venture without much of a problem.
Here at Bizzloans, we make sure that we match business owners to the best business line of credit in the UK. Take away the hassle of searching for loans with our smart software that gets your applications processed quickly. See the business lines of credit that have been used by thousands of Australian businesses by clicking the button below.
No Security Necessary
The main thing that makes unsecured loans more attractive than secured loans is the fact that they’re no security. It might be an obvious thing to highlight but it clearly matters. You won’t be weighed down by the pressure and worry associated with having collateral hanging over you and potentially being lost to the lender if you fail to make repayments. If you don’t want to take the risk of losing your collateral, you just need to opt for an unsecured loan instead. It’ll allow you to avoid any risks associated with secured loans.
Build Up Your Future Credit Score
By taking out a loan and then paying it off on time, you will help to build or repair your credit score. Many companies are dealing with poor credit, but by taking out an unsecured loan with a lender that is happy to lend to companies with poor credit, you can start to turn the situation around. Meeting regular repayment deadlines shows the world that you are able to stay on top of your financial obligations and pay off the money you owe, and that will only help your business going forward.
Why Your Business Might Want to Take Out an Unsecured Loan
There are lots of reasons why your business might take out a loan, as well as reasons not to. You shouldn’t take out a loan to cover running costs, but if you want to do other things, such as the things we’re going to discuss below, an unsecured business loan can be ideal.
Grow and Expand
Most entrepreneurs have big plans for their businesses. They want to ensure that their business is one that’s got a bright future. So if the time has come for you to grow and expand your business, you should think about whether taking out an unsecured business loan might help you to do that. It could be exactly what you need to get your business moving in the right kind of direction. It takes money and investment to grow your business and a loan might just be the ideal solution.
Take on More Clients and Customers
If your business doesn’t currently have the resources to deal with more customers and clients, it could be time to scale things up. However, that’s something that costs money, whether you like or not. Taking out an unsecured business loan could help improve the resources your business has available. It could mean hiring more people so that you have the human resources needed to take on more clients and make more customers happy. The loan will cover the costs associated with doing that and it’ll pay for itself if you’re able to improve your profits as a result.
Fund a New Marketing Campaign
Maybe it’s the case that attracting new customers to your business is where your problems lie. It’s not always easy to get your voice heard and make people aware of why they should be taking notice of your business. An unsecured loan could be used to fund a new marketing campaign that gets your message out there and makes more people interested in your business and what it’s offering. So if you have an idea for a marketing campaign that you think might work but you don’t have the financing for it, consider a loan.
The chance to improve your business in the many ways mentioned above offers you a real opportunity that you might want to grasp. Secured loans can offer the same access to financing but come with more risks to your business. With an unsecured loan, you can reap all the rewards that come with having the cash to invest in your business without having to worry about the risks adversely affecting the business in the future. The chance to improve with fewer risks attached to that chance should not be ignored or dismissed.
The Requirements for Getting an Unsecured Business Loan
There are some requirements you’ll need to be aware of before you take out an unsecured business loan. These aren’t too harsh or restrictive at all, but they are important.
24 Month Limit
When you take out an unsecured loan from Bizzloans, you have to pay the loan back within 24 months. That’s the maximum repayment term that’s on offer. Of course, that won’t be a problem for the vast majority of businesses out there. It’s important that you look at the finances closely and decide for sure that this is something your business is going to be able to do. You’ll have a chance to do this when you get a quote from us, so you’ll know exactly what you’re signing up to.
Business Bank Statements
To ensure your business is in a financial position to take on a loan of the size you’ve applied for, you’ll need to simply submit your business’s bank statements. This allows us to ensure that we lend responsibly and don’t burden you with a debt that is too much for you to take on. It’s in both your best interests and ours that you’re able to handle the loan that you take on.
To ensure everything is correct and proper, and you are who you say you are, you have to submit a photo ID. This is common practice and ensures that all financial transactions are above board and in order. It’s very easy to do and needn’t be a headache for you. Once we are satisfied with your application, you’ve provided the bank statements and we’ve checked your ID, it won’t be long before you have access to the loan you applied for.
Getting an unsecured business loan for your company could be just what it needs right now. It’s a much safer option than taking out a secured loan and you’ll be accepted much faster. Don’t hesitate to get in touch with us here at Bizzloans if you’re thinking of taking out an unsecured business loan.