The Basics of Business Lines of Credit

As a small business owner, you may be looking for the right type of funding for your startup. Business loans are difficult to obtain, and there are numerous drawbacks to using personal credit cards to finance your company. One option to consider is a business line of credit, which is easier to qualify for and more flexible than a loan. Here is some basic information about lines of credit so you can assess whether they are a good fit for your business.

How Lines of Credit Work

When your business is approved for a line of credit, you have an amount of money available to you up to a predetermined limit. You only pay interest on the amount of funds that you borrow. After you repay this amount, the funds are available to you again.

Advantages of Lines of Credit

Lines of credit can be secured by companies that do not have excellent credit scores or long credit histories. In fact, you can use a line of credit to improve your credit score. You have a reserve of funds ready to use whenever you require them, and you have the flexibility to use the funds for whatever business expenses you deem necessary.

Secured and Unsecured Lines of Credit

Your line of credit may be secured or unsecured. Secured lines of credit are backed by collateral such as equipment, inventory, or commercial or personal property. You do not need collateral for unsecured lines of credit, but the interest rates are usually higher.

Application Process

Before you apply for a line of credit, determine how this method of financing fits into your company’s short and long-term financial plans. When you apply for a business line of credit, be prepared to submit your personal credit score, Employer Identification Number (EIN), financial statements from your business, tax returns, and bank account information. Be meticulous when filling out the application so that you don’t make mistakes. Keep in mind that it is best to apply for lines of credit before you need them, as your application will more likely be approved if your business is doing well.

For more advice on business lines of credit, contact Evolt Capital.