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Originally Posted On: http://www.istorytime.com/what-is-a-business-credit-line/
When you need cash for your business, you have a lot of options. You can get a business loan, or you can get an investment of cash.
One area of business financing that many business owners don’t know about or understand is a business line of credit.
The main reason why 80% of businesses close is because of cash flow. A business credit line can serve to help you close that gap when you really need it.
Read on to learn more about what a line of credit is and how your business can use it to grow.
What Is a Business Credit Line?
A business line of credit functions like a loan or a credit card. Both give you access to cash when you really need it.
With a business loan, you get a lump sum of money that you have to pay back in installments. The installment payments include the principal and the interest on the loan.
A credit card lets you borrow money that you have to pay back, with interest. The rates on credit cards are often much higher than business credit lines or installment loans.
A business line of credit is also called a revolving line of credit. Like a credit card, you have a maximum amount of money available. That amount depends on how much you’re approved for. It could be $5,000 or even $100,000.
When you need to make a big purchase or pay unexpected expenses, you can tap into your line of credit to make the purchase. Like a loan and credit card, you can pay the amount borrowed an interest over time.
A business line of credit gives you a lot of flexibility in managing your cash flow. You may need to draw on it if you have an unexpected drop in revenue or you want to invest in equipment.
How to Get a Business Line of Credit
When you’re looking for cash for your business, a business credit line is a smart option. How can you get one for your business?
The requirements for a business loan will be different from one lender to the next. You want to make sure that you choose a lender that offers the best terms and interest rates for your loan.
You also want to know if you’re planning to get a secured or unsecured line of credit. The difference is that with a secured line of credit, you’re using something as collateral to back the loan.
That will give you a lower interest rate because you are limiting the lender’s risk.
You’ll need to show that the business is on solid financial footing and you can pay the loan back. You may be asked to provide financial statements, your credit score, and other supporting documents.
Getting a Business Credit Line
There are many ways to manage cash in a business. You always want to have cash on hand, especially if there’s a sudden drop in business.
If you can’t pay cash, a business credit line will give you the flexibility to manage cash without having to go under.
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