Financial markets are highly volatile, especially when there are economic challenges. However, due to this, the prices are constantly changing, and in this financial crunch, no business can make progress. It means you wont be able to make money as a trader because sometimes there is more volatility than at other times. If you are a business owner, many of you have missed an opportunity due to a lack of capital. Businesses also struggle to pay bills on time due to a lack of money. So, in this situation, you get to know how frustrating cash flow problems can be. But the business line of credit works as a savior for these cash flow problems. If you want to get the advantage of this, then here is a good guide for your help:
What is a business line of credit?
A business LOC is a financing method like a line of credit card. However, with this facility, you get an opportunity to access a certain amount of cash that you can withdraw anytime. A business can withdraw the money if it doesnt exceed the borrowing limit. Apart from this, you only need to pay interest on the amount you borrow. The business line of credit is better than a traditional small business loan in the following ways:
- You dont need to repay the amount after a specific period.
- Businesses only need to pay interest on the amount that they borrow
- The business line of credit is a more flexible borrowing method
Moreover, companies can use lines of credit for meeting short-term needs like cash flow management, buying inventory, or covering paystubs.
Get a business LINE OF CREDIT:
The right time to apply for the business line of credit before you need it.
There are many essential tools that every successful business needs. Apart from this, financing is also mandatory to grow. Out of all business loans, the LOC is one of the most flexible options, where you get a limit of a specified amount. However, here are the following reasons why a business should get a line of credit:
|If your company has inconsistent cash flow||If the business is seasonal and you need money in the off-season|
|You need to pay for supplies and inventory||Pay for the supplies and stocks|
|For an emergency fund||If you need to pay for a project|
So, its a good choice if you need cash fast, as it doesnt require any application. The LOC comes in various forms regarding duration, grace period, interest, and security. So, if you want to get the advantage of this facility, do proper research before getting into this.
How to get a Business LOC? Step to step guide:
Earlier, we discussed that LOC is available in different forms and requirements. Each category falls into different categories, secured and unsecured. However, there are the following types that have their characteristics.
|Types of LOC||Characteristics|
|A personal line of credit||Funds can be borrowed, repaid, and borrowed again Requires credit history of no defaults and credit score of 670>|
|Home equity LOC||Typically, the credit limit is 75%-80% of the homes market value minus the amount owed.|
|Business LOC||You can borrow as per need instead of a fixed loan|
|Demand LOC||Its rarely used|
|Securities backed LOC||The borrower provides collateral It lets investors borrow anywhere between 50%-95%|
The most common types are business, home equity, and personal. But personal LOC is unsecured while others are available in secured and unsecured options. So, if you want to apply for the BLOC, then follow these steps:
Decide the type of LOC that you need:
Earlier, we discussed different forms and types of lines of credit. So, if you want to make a wise decision, read each in detail. The categories are designed according to different purposes for businesses. Apart from this, you should know the requirements to qualify for that specific LOC. Here are a few criteria for LOC:
- A personal credit score of 500 will qualify for LOC, and if your CREDIT SCORE is more than 600 or 660, then you will be eligible for the most desirable LOC.
- The minimum annual revenue should be between $25,000-$100,000. Apart from this, you need a bank statement, balance sheet, P&L statement, additional documents, and business & personal tax returns.
- It would help if you had collateral as a security.
- You can easily qualify for LOC if you have spent at least six months in business.
In addition, you need to provide a current debt schedule and basic personal & business information.
Assess whether you can qualify:
The borrowing health plays a vital role in deciding whether you will qualify for LOC or not. Usually, LOC is more complex than traditional term loans. However, if you want to qualify, then you should have min-of $ 25,000 of annual revenue. Apart from this, lenders look at the following factors to assess the repaying ability:
|Credit score||How long have you been doing business||Business revenue|
|Collateral||Whether you have recent bankruptcies|
In addition to this, the lender can ask for personal and business tax returns and other documents. They need all these details to check your financial health and borrowing capability.
Look for the LOC lenders:
The next step is finding a suitable lender to give you money. If you understand the requirements, it will be easy for you to search for the lender. There are different forms of lenders where you can apply for LOC:
- Credit issuers agencies
- Small business administration
Moreover, there are online lenders available that are ready to lend money if you meet their criteria.
Complete the application and apply:
After understanding everything, the final step is to complete an application and apply for the business line of credit. The application procedure depends on the type of lender for whom you are using. Many lenders offer an online application procedure, but sometimes, you may need to go to a physical location. You must fill out the form with basic information, business & personal tax returns, bank statements, personal ID, and balance sheets.
After reading the whole text, its clear that the business line of credit offers many advantages to borrowers. But it doesnt mean this model is perfect for all companies. It gives you financial peace of mind, money, and more credit. But it also comes with drawbacks like hefty fees, and this method could easily be abused. So, before applying, its vital to research whether its an excellent fit for your company or not.