When you own a business, having a line of credit available to you can be a lifesaver. A small business line of credit offers funding like a loan with the payment options and convenience of a revolving line of credit. If you only borrow money when you need it and pay it back as promptly as possible, you will have the money your business needs in case there is an emergency. With a small business loan, you receive all the money at once. If you apply for a small business line of credit, you will be approved for a specific amount. This allows you to borrow smaller amounts as you need it.
Using a Small Business Line of Credit
A small business line of credit allows you to borrow small amounts as you need the money. The money can be used for any business-related expense, including replenishing your inventory, covering payroll or making emergency repairs if a piece of equipment breaks down. Making payments regularly will allow you to continue borrowing money as long as the funds are available.
Secured and Unsecured Lines of Credit
Small business lines of credit are often unsecured. An unsecured loan does not require any type of collateral. If you have only been in business for a short period of time or are asking for a large sum of money, you may be required to provide a blanket lien to secure your credit line. Small business lines of credit are reviewed annually and can be increased if you have an excellent payment history.
Obtaining a Small Business Line of Credit
In order to qualify for a small business line of credit, you will have to meet your lender’s requirements. In most cases, the business will have to be open and under current ownership for a specific amount of time. You may also have to provide profit and loss statements, a business plan and bank statements for the past few months. Your bank will provide you with a list of documents you will need to verify proof of eligibility.
A small business line of credit will often have interest rates that are much lower than you will find with a credit card or small business loan. Cash advances on a credit card can also carry high-interest rates which makes this type of funding almost too expensive to consider. Before you apply for any type of credit, do your research and check into the various interest rates that are offered.
Applying for a modest small business line of credit as soon as you are eligible and paying it off within a few months will help improve your credit rating. Maintaining the line of credit and keeping it in good standing ensures you will be able to apply and be approved for larger loans in the future.
Boost Your Business’s Financial Stability with EDC
EDC’s business advisors can help review your small business finances and determine what types of credit might be right for your small business. Maintain a seamless operation and address financial needs efficiently with flexible lending options tailored to your small business requirements. Contact us at the Economic Development Collaborative (EDC) today for personalized assistance.