A small business line of credit opens up a constant cash flow opportunity for small businesses and startups alike. Unlike traditional small business loans, lines of credit give owners the flexibility to borrow only the required capital from a set amount approved for their business. Lines of credit allow you to borrow and repay only the amount you need to utilize at that time. Small businesses can handle cash flow gaps, access more working capital, or address any opportunity or emergency by leveraging their line of credit.
Businesses utilize this ready-to-use cash on flexible terms for a number of financial needs, and it has turned out to be an ideal solution for many of our clients. REIL Capital brings you a comprehensive guide to a small business line of credit and why your business should have a line of credit.
What Makes a Business Line of Credit Different from Other Funding?
A business line of credit offers funds to businesses just like a traditional business loan or financing, but the only difference is that these predetermined credit lines are revolving. With traditional term loans, you receive your funding all in one lump sum, and have one payment of principal plus interest. With a line of credit, businesses can utilize as much or as little funds as they want from the set limit and once they start repaying, the repaid funds are again available for usage. There are certain points that set a business line of credit apart from term loans including:
- Businesses can withdraw funds whenever they want
- Businesses can withdraw funds repeatedly
- Businesses only pay interest on the outstanding amount
What Documents Do You Need to Apply?
Traditional term loans and SBA loans typically require a number of documents, but to apply for a business line of credit, you only need the following things.
- 3 Months of Business Bank Statements: The US Small Business Administration reported that only 20% of small businesses survive the first operational year. That is why both banks and finance companies ask for at least 3 months of financial statements to analyze business health and revenue proof.
- Application: A completed REIL Capital application carries all the essential information about the borrower that underwriting needs to generate an approval.
Upon receiving an approval, line of credit providers typically ask for bank verification for fraud prevention, a Drivers License to confirm identity, and a Utility bill to confirm the address of the business.
Why Does Your Business Need a Line of Credit?
Businesses often need funds to carry out their operations or purchase immediate inventory. While most businesses have certain working capital available to manage these unplanned expenses, sometimes that capital may fall short to fulfill all needs. For instance: you bought a piece of new equipment to increase efficiency with your business operations, but due to payment delays from one of your big clients, your business cash flow is seriously affected, further threatening your business stability. This is when a line of credit in place can handle the cash crunch by giving you access to the capital you need immediately.
However, businesses have been using a line of credit for more than just emergency situations. It has become a tool for businesses to grow faster as a credit line can be leveraged for:
- Hiring new resources to meet the growing demands
- Purchasing equipment
- Opening offices in new locations to expand the business
- Purchasing inventory for special occasions
- Making payroll during temporary sales dips
Does My Business Qualify for a Line of Credit?
The line of credit funding option is available for almost all businesses with at least 6+ months of revenue. Less established and younger businesses typically qualify for shorter term credit lines, while businesses with a strong financial and credit history qualify for medium-term credit lines.
Apart from that, the business needs to have $100,000 or more revenue with 620+ FICO score, which is calculated using payment history, new credit, length of credit history, amounts owed, and credit mix. The maximum funds allowed to a business are determined through your revenue, credit score, and payments history.
Benefits of Getting a Line of Credit
Flexibility: This is arguably the best benefit of getting a business line of credit. The flexibility of drawing cash as per your business requirement allows owners to ignore the option of a small business loan where other financing options offer one-time lump sum funds that is repaid in a series of payments. SBA loans or term loans may turn into havoc in times of uncertainty, whereas credit lines can fill the immediate cash crunch.
Low-Interest Rate Paid Only on Credit You Use: First of all, the interest charged on a business line of credit starts at 0.4% a week. With 6 to 12 months to repay the funds and low-interest rates, businesses never have to worry about ballooning costs on their line of credit.
Fast Processing: If you can apply through REIL Capitals online application, you can get your credit line approved in one day. The instant approval of these revolving funds allows businesses to rely on their line of credit for any instant capital need.
How to Apply for Revolving Line of Credit
A number of banking and non-banking financial companies offer business lines of credit. However, to get instant approval and to leverage LOC promptly for business growth, apply for a revolving line of credit here.
You can get a credit limit as low as $1,000 and as high as $250,000 for your LOC depending upon your revenue, credit profile, and payment history.
Small business lines of credit have always aided in business growth and profit expansion by filling the financial gaps that may arise due to certain situations. Businesses can utilize these revolving funds to build their organization, purchase inventory or equipment to amplify success, or any other business need.