Your Guide to Business Lines of Credit
Needing additional capital for your business isn’t an uncommon problem. Many businesses require funds. Additional money can help you to achieve a wide variety of goals. The thing is that not all businesses can qualify for a loan. Or, perhaps a loan doesn’t meet your specific needs. Another option to consider is a business line of credit.
What Is a Business LOC?
Business lines of credit are an alternative to a traditional business loan. Instead of a lump sum that you make fixed repayments on (and pay interest on), you receive access to a pool of money that you can use when you need it.
Secured Vs Unsecured LOCs
Business lines of credit are either secured or unsecured. A secured line is one that has collateral attached. Collateral can make it easier to get approved and can result in lower interest rates. While unsecured lines often have higher rates, you don’t have to worry about putting up business or personal assets as collateral.
How Does a LOC Work?
You borrow only what you need (up to your maximum available limit). You can make as many withdrawals as you need, too. You pay back only what you use and only pay interest on what you borrow. As you repay, your available balance replenishes, allowing you to keep using the money when you need it.
How to Qualify
When applying for a business line of credit, you will need to provide some information about your business, including:
- Your personal (and business) credit history.
- Identifying information for your business, such as your Employer Identification Number.
- Your business bank account information.
- Business and personal tax returns.
- Financial statements.
The company providing the line of credit will need this information to determine not only if you qualify, but your rates, terms, and how much you can be approved for. Having your information ready before you apply can make the process much smoother and much quicker.
What If I Have Bad Credit?
Bad credit doesn’t necessarily keep you from qualifying for a line of credit. You may, however, have a harder time getting approved. You may also be faced with higher interest rates. Some companies work with borrowers who have less than perfect credit. You should also take steps to improve your score.
Business loans aren’t always the answer to a business’s funding needs. Business lines of credit provide a flexible alternative that provides you with the money you need for your business when you need it.
