Business Lines of Credit 101: Everything You Must Know - S'witty Kiwi (2024)

Do you need access to funding so you can meet emergency short-term needs in your business? If yes, understand how business lines of credit work so you can access quick cash to clear your business’ day-to-day operational needs, pay your staff, or sustain increasing inventory.

Read this article till the end to understand how business lines of credit work, how to apply for a business line of credit, and so on.

To Know How Business Lines of Credit Work:

1. Understand What Business Lines of Credit Are.
2. Know How Business Lines of Credit Benefit Your Business.
3. Know The Difference Between Secured and Unsecured Lines of Credit
4. Grasp the Pros and Cons of Business Lines of Credit
5. Understand The Requirements to Get a Business Line of Credit
6. Learn How to Apply for a Business Line of Credit
7. Know Popular Business Lines of Credit Lenders

Excited? Let’s get started.

To know how business lines of credit work, understand what they are. A business line of credit is a flexible loan that grants you access to a certain amount of money so you can meet short-term emergency needs, including paying for marketing advertisem*nt, purchasing equipment, and so on.

Whenever you tap into the business line of credit and repay the amount you borrowed, the line replenishes itself. That’s called a “revolving” line of credit.

To know how a business line of credit works, know its impacts on your business. Think of how your personal credit card works! It’s similar with a business line of credit where you access funds up to a set limit—between $1,000 and $250,000. Draw any amount you require within the limit to meet your business needs.

Replenish your account upon exhausting your line of credit by making instalment payments on your balance. Don’t forget that you incur interest only on the amount you borrow. There is no limit to how often you can draw money from a business line of credit, provided what you draw is not greater than the available balance.

To understand how business lines of credit work, know the difference between secured and unsecured lines of credit. Choose between secured and unsecured business lines of credit depending on your need and qualification. Provide your lender with collateral without bothering about your credit score in order to get a business line of credit. Lenders’ requirements for a business line of credit differ. Find out what your lender demands and check if you can meet the requirements.

For an unsecured business line of credit, lenders pay close attention to your personal credit score and
business’s financial condition. Have a track record of good personal and business credit scores and record of consistent profits so you can qualify for an unsecured business line of credit. Consider unsecured business line of credit if you don’t mind higher interest rates and a lower limit.

• Pros of Business Lines of Credit

The major benefit of business lines of credit is that upon getting an approval, you continue to draw funds whenever you need it provided you do not exhaust or exceed your limit. Pay interest on the amount you draw and not on your overall balance. Consider a business line of credit to:

Access lower fees and interest rates. Most business credit cards offer higher interest rates than business lines of credit. Depending on the needs that arise, use a business line of credit to meet some expenses and pay less on interest.

Build your credit score. Check if your lender reports to the credit bureaus. If yes, make on-time payments on the amount your draw to boost your credit score.

• Cons of Business Lines of Credit

Slow application process. Banks take longer periods to approve your business line of credit application. Check other lenders—for example, Lendio, OnDeck, etc.—that do not require complicated process to approve business line of credit application.

Excess debt. Watch out for accumulating debts in business lines of credit. Your debt accumulates if you default. Hence, keep track of your payments and ensure you make on-time payments.

Fees add up. Maintenance fees and withdrawal charges add up on business lines of credit.

To grasp how business lines of credit work, understand requirements to get a business line of credit. Complete the application process and select either secured or unsecured business lines of credit. Prepare your personal credit score or assets before you apply for a business line of credit—depending on which type of business credit line you’re opting for.

Find out what your prospective lender requires. Some items to prepare for application are:

• Financial statements. Prepare your business financial statements that show your business is at least two years old—include your tax returns documents also.
• Revenue and profit statements. Convince your lender your business generates profits to boost your chances of getting an approval. You don’t need to provide any collateral to a lender if your business generates reasonable profits and revenue.

Other items of importance include collateral, economic ratio, and so on.

To understand how a business line of credit works, learn how to apply for it. Research lenders and check through their requirements. Banks and credit unions typically offer business lines of credit.

Submit your personal two years tax returns, business bank statement, business tax returns, business’ profit-and-loss statements, and your personal information. Read and understand the lender’s terms and conditions before you submit your application.

To get a business line of credit, know popular line of credit lenders and what they require.

• BlueVine. Access funds quickly and meet your business urgent needs with BlueVine. The platform offers APR that commences at 4.8% and provides up to $250,000 credit limit. To qualify for BlueVine’s line of credit, maintain a business credit score of at least 600, generate minimum of $10,000, and run your business for at least six months. Choose your instalment repayment method—weekly monthly.
• Credibly. Choose Credibly if you’re a new business owner with lower credit score of a minimum of 560. Access line of credit up to $250,000 with APR of 4.5% repayable within six months.
• OnDeck. The platform offers credit limit up to $100,000 to new business owners. Pay 35.9% APR and get quick access to fund even at night or weekends.
• Regions Bank Credit Line. Get an unsecured business line of credit between $500 and $3000 with 21.9% APR.
• Bank of America. Access both secure and unsecured business lines of credit from Bank of America. Get up to $100,000 and $250,000 credit limit for unsecured and secured business lines of credit respectively.

To understand how business lines of credit work, understand what business lines of credit are, know how business lines of credit benefit your business, and know the difference between secured and unsecured lines of credit.

Grasp the pros and cons of lines of credit, understand the requirements to get a business line of credit, learn how to apply for a business line of credit, and know popular business lines of credit lenders.