Are you interested in applying for a business credit line? Do you need to learn more before moving forward? Are you concerned about making the wrong decision on behalf of your company?
On the surface, a business credit line is simple. It’s nothing more than revolving capital that provides fast and flexible access to cash.
However, as you learn more about the details, you’ll find that there is more than meets the eye. And since you want to make the right decision, you need to know exactly what you’re getting into.
Tip: it doesn’t matter what type of business you own, you may want to learn more about this financial tool at some point. From a digital marketing agency that wants to expand to a restaurant in need of equipment, this could be the right decision.
Here are some of the many details you need to familiarize yourself with.
Every lender has its own qualifications for a business credit line, so you’ll want to learn more about this before you begin the application process.
Generally speaking, lenders like to see that you have been in business for a minimum of six months to one year. Along with this, $50,000 in annual revenue will improve your chance of an approval.
Note: one of the biggest benefits of a business line of credit is that you can receive an approval with poor credit.
2. Maximum Loan Amount
This is a big decision for every borrower, as you need to decide early on how much money you want to borrow.
While it differs based on lenders and your qualifications, most business credit lines range from $10,000 to $1 million.
With such a wide span, most companies never run into issues in regards to the maximum loan amount.
3. Interest Rate
Your goal with any type of loan or credit line is to secure the lowest possible interest rate. The lower you rate the less money you will pay in interest every month.
Everything from the lender to your credit score to the amount you are borrowing will impact your interest rate. Most lenders offer credit lines between 7 and 25 percent, putting it on par with business loans and credit cards.
Tip: no two lenders are the same, so shop around based on the interest rate. By putting in a little bit of work up front you can save yourself a lot of money over the long run.
Are There Any Drawbacks?
When borrowing money, you shouldn’t hesitate to list out the pros and cons of each financial product available to you.
It’s easy to get so hung up on the benefits of a business credit line that you overlook the potential drawbacks. These can include but are not necessarily limited to:
- A lower credit score typically means a higher interest rate, which may reach as high as 25 percent
- The lender may require some form of collateral
- The lender may require updated documentation every time you withdraw money from your line of credit
The good thing about these potential drawbacks is that you can discuss each one with your lender before signing on the dotted line.
For example, you may find that your low credit score is leading to a higher interest rate. Rather than take the money now, you may want to wait a year so you can improve your credit score. This will allow you to secure a lower rate down the road.
Tip: if a lender is unable or unwilling to answer your questions, don’t hesitate to shop around. There are hundreds of lenders willing to do business with you, so keeping an open mind will put you in a good position to get what you want.
Business Credit Line – Common Questions
If you’re on the fence regarding a business credit line, here are some questions you may want to ask a lender:
- What does the application process entail?
- How long does it take to complete an application and receive an approval?
- Can you explain the details that will have the biggest impact on the interest rate?
- Are there any regulations as to how my company can use the money?
- Do you require collateral?
These questions, among many others, will open the line of communication and help you better understand what a line of credit has to offer.
These are the types of things you need to think about as you consider a business credit line. It may not be right for your company at this time, but it could be at some point in the future.
Do you have any experience using a business line of credit? What did you like about it? Is there anything that would stop you from using this form of financing in the future? Share your thoughts in the comment section below.
If you are interested in even more business-related articles and information from us here at Bit Rebels then we have a lot to choose from.