Benefits of a Business Line of Credit and How to Qualify
Guest Blog By: Rae Steinbach
Running a successful business requires spending money. That said, odds are good you don’t have immediate access to all the cash you need to grow your business. It’s far more likely you’ll need to take out a small business loan, or a business line of credit to cover various expenses.
A business line of credit is one option to consider. Although there are numerous types of loans available to entrepreneurs, this particular option offers benefits that may be ideal for your needs.
What is a business line of credit?
A typical loan involves receiving a one-time lump sum which you pay interest on. With a business line of credit, on the other hand, you can reuse funds up to a certain amount, and only pay interest on the funds you use. For instance, if you received a business line of credit up to $100,000, but only drew $50,000 from it, you would only pay interest on that amount.
It’s easy to understand why this may be an appealing option to a business owner. You don’t want to pay interest on funds you don’t end up using, after all. However, it’s also important to keep in mind that interest payment schedules (and the amount of interest you must pay) is far more consistent with a typical loan.
When you have a business line of credit, when and how much you pay will likely vary based on how much money you’ve drawn from your line of credit in a given month. Like any loan, you also need to pay back what you owe, regardless of whether your business succeeds.
Other benefits to consider
Only being responsible for paying interest on funds you’ve actually used is just one benefit a business line of credit offers. Additionally, credit limits tend to be higher than those associated with business credit cards, making this option helpful when you need to make large purchases.
Business lines of credit are also more flexible than some other options. While certain types of business credit cards and loans place restrictions on how you can use your funds, business lines of credit often allow you to cover a wider range of expenses.
Qualifying for a business line of credit
If you decide that a line of credit is right for your business, you’ll need to qualify for one before accessing funds.
This usually requires providing key pieces of documentation to a lender, including tax returns, financial statements, and general bank account information. You’ll also need to prove your business has generated consistently strong revenue over the course of a few years.
Some risk is involved as well. In order to ensure you’ll be able to pay off what you owe, a lender may require you to put up assets as collateral. Keep this in mind when considering your options.
These are all reasons it’s important to pay back all business loans. Again, a line of credit offers major benefits. If you’re financially responsible, you can qualify for one, making it even easier to grow a thriving business.
Need More Information
Thank You to Our Guest Blogger, Rae Steinbach, Funding Circle’s Freelance Editor. Rae is a graduate of Tufts University with a combined International Relations and Chinese degree. After spending time living and working abroad in China, she returned to NYC to pursue her career and continue curating quality content. Rae is passionate about travel, food, and writing.
As always thank you for reading. If you need help with your small business finances please reach out to our Guest Blogger, Funding Circle for assistance.
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