Many businesses periodically face unanticipated expenses. This makes it imperative to have access to funding in a time of need. An effective solution to this difficulty is a business line of credit. Here is some important information about this method of financing.
Basics of a Line of Credit
A line of credit differs from a term loan in that unlike a loan, you do not obtain a single lump sum of funding. Instead, you have access to an agreed-upon amount that you can draw on in time of need. It is revolving in that after you return money that you have borrowed, you once again have access to it for future loans. Collateral is necessary for a secured line of credit, while an unsecured line requires no collateral.
Qualifying for a Line of Credit
When you apply for a business line of credit, the lender will want to see some documentation. This will include your business and personal credit scores, tax returns from your business, bank statements, profit and loss statements, and projections of upcoming finances. The lender will also want to know how long you’ve been in business, as newer companies often need to provide collateral.
Advantages of a Line of Credit
A line of credit gives you the flexibility of a credit card but with a significantly higher credit limit. It can provide stable cash flow for seasonal companies or businesses that offer fairly long payment terms to their clients. You are only required to pay interest on the amount that you use. If you are diligent to make timely payments, a line of credit can help boost your company’s credit score.
Using a Line of Credit
One of the greatest benefits of a line of credit is its versatility. You can use it to cover standard operational expenses, purchase inventory, upgrade equipment, or hire additional personnel.
For more advice on obtaining a business line of credit, contact Means Commercial Capital.