Time to Funds
A business line of credit is an unsecured line of credit that works like a revolving charge account. In the same way a business credit card gives you access to credit up to a certain borrowing limit, a business line of credit lets you borrow, pay back the balance over time, and then draw down funds again when another need arises. You have complete control over a business line of credit, and you can use the funds for a huge variety of business needs ranging from inventory purchases and payroll to new equipment or office space.
Is a business line of credit a good fit for your business? Read on to help you decide.
A business line of credit will mature in one to two years, but the interest rate you pay will depend on the amount of credit used and the amount of time a borrowed balance remains unpaid.
In other words, using a business line of credit for small expenses well within your maximum spending limit and then paying them off quickly will allow you to leverage a relatively cheap source of capital, with interest rates as low as 8%. There’s also nothing that requires you to borrow against the credit you’ve been allotted, so you might open up a business line of credit that you save strictly for emergencies. By reserving your business line of credit for unforeseen expenses, you can preserve your working capital and ensure that other pressing business needs continue to be met.
Is a business line of credit a smart source of financing for your business? It could be if any of these situations sound familiar:
Maybe business is strong at the moment, but you’re expecting a lull after the holiday shopping frenzy. Applying for a business line of credit now—before you’re in a financial bind—will help you limit your borrowing and better weather a seasonal dip in sales. If you have strong financials but want access to a source of credit in case of an emergency such as a supply chain crisis or a critical equipment failure, a business line of credit could be just the safety net you’re looking for.
Would another financing option be more appropriate than a business line of credit? Yes, if:
If you’re looking at a major investment like a new location for your business, you risk quickly maxing out a business line of credit and paying a premium on the amount borrowed. Instead, a commercial mortgage would be a better fit to allow you to pay for the new property over 20-25 years with a much lower interest rate. Acquiring a competitor would also warrant a different option, with a business acquisition loan offering better rates and more flexible term lengths to fund the more substantial purchase.
Over 1 Year
Qualifying for a business line of credit is a lot like applying for a credit card. In general, Lendesca is looking for a minimum credit score of 600, a business that’s been open for a least one year, and one with more than $100,000 in annual revenue. If you meet these criteria, you’re well on your way to opening up a business line of credit that can prove to be a versatile financing option whenever you need it.
Interested in getting the process started? Fill out our loan application and you’ll also see what other financing tools your business could qualify for.
One of the biggest benefits of opening up a business line of credit is that you’re under no obligation to borrow against it. As a result, it’s far less committing than more traditional financing options such as a startup loan or a business term loan, but there are still some pros and cons you’ll want to think about:
Is a business line of credit right for your business? Only you can decide. In our opinion, savvy business owners have little to lose by opening a business line of credit because there’s no obligation to borrow against it. That means you can reserve your credit for emergencies, or withdraw money for expenses that you immediately repay to build your business credit profile. Ultimately, if one of your business financing goals is improved access to working capital, a business line of credit will be a tough option to beat.