Business Personal

How to Use a Business Line of Credit

When it comes to borrowing money to spend in tough times, a line of business may be the answer. Defined as a source of credit for your business, it allows your company to use the capital generated to grow the business and take advantage of the opportunities that arise.

It’s a great way for a small business to benefit from a short-term need for cash. More importantly, it allows you to decide whether a line of business is the right solution for your business or not. 

Qualifying for a Line of Credit

A credit line may be secured or unsecured, depending on whether the lender needs collateral to support the credit line. Secured businesses of Credit typically have a larger credit limit than unsecured financing. You can be eligible for a large credit limit, or you can get a small credit line limit of up to $5,000 per month or $10,500 per year.

To qualify for a credit line, lenders will look at your individual credit history and business history, as well as your financial history. If you haven’t had a line of credit for a business, lenders will also check your personal credit history. In order for lenders to qualify you for business lines of credit, they will need to look for the strength of corporate loans, and they will look for good credit worthiness, such as a high credit score, a good debt-to-income ratio, and a good balance sheet.  

Banks will consider a credit score of 650 or less for a line of business, as well as a good debt-to-income ratio. Most banks require 700 or better credit scores unless you have substantial collateral to support your line of credit. Secured lines of credit are approved by the capital or one of the other banks if you had collateral for the credit line.

Most entrepreneurs who want to obtain a credit line prefer this option, because the lender does not require assets as collateral. Small branches of Credit offer unsecured debt specifically, which means you don’t have collateral to pay for it.  

Do I need a Line of Credit?

If you want to improve or maintain your credit rating, it can be a good way to obtain a business loan and pay it off responsibly. The positive aspects of a credit transaction are the fact that it can help build up the credit history of your business.

Business credit lines also include additional flexibility that is not part of a small business loan. They are a revolving credit, so you need two cents to repay the loan for 12 to 24 weeks. If you repay the $2,000, you will have access to $10,000 for the rest of the year. Take the same revolving credit line that you can use indefinitely, or an unsecured credit line – from – that improves your credit rating. 

How do I get one?

If you are unsure how to obtain a Business Line of Credit, you will need to speak to your bank to determine what a secured or unsecured credit line would look like for you and your business, and what materials are required for your application.

The lower your credit rating, the riskier it is for your company to obtain a credit line. Some lenders want to minimize this risk and require you to personally guarantee the loan, meaning that your personal credit scores will be a factor in the line of business – or credit approval. 

It is vital to compare lenders to get terms that work for your business and get the best loan rates. Certain banks will only approve lines of business for companies less than two years old if they are approved by a particular bank, such as a small business loan. 

If your business is looking for an unsecured credit line, it is worth applying to an online lender. Many lenders are open to looking at areas such as credit cards, credit unions and credit card companies. Business lines – or loans – can be approved in as little as 24 hours and often take a few days.

Make sure that you, as a borrower, receive cash to cover costs that you would not otherwise be able to purchase with a credit card.




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