As the business world weathers another stretch of the virus aftermath, people are exploring ways to stay afloat while looking for new avenues that avail them of profits. The right funding opportunities can help your business amplify over a short period. So as an entrepreneur, where can you explore your funding options?
A business line of credit is used to help fund short-term working financial needs. In colloquial terms, banks offer a loan that sanctions business owners to draw against a large sum of money. The interest is applied to the portion of the amount borrowed. For instance, if a company has a $20,000 credit line but only uses $4,000, interest is paid on the $4,000. It provides access to funding whenever needed, with flexible payment options. The line of credit can be used for training and paying for upcoming projects, covering emergencies like equipment repairs, etc.
A business line of credit is a good solution for companies that want to cover operating costs or pay for unexpected expenses so the business grows.
How to obtain a business line of credit?
In order to obtain a business line of credit, a company should establish an operation and transaction history for two years to the bank. An established record of prompt payment payments is to be submitted to the bank offering a credit line for a significant amount. Many companies begin building a credit record by opening up a business credit card and then paying off purchases on a timely basis. A transaction done through cash or card serves as a legal record for payment history. The flexibility of payments is the key difference between a line of credit and a traditional bank.
Business line credit requirements include a reliable, ongoing source of monetary relief as the business encounters new requirements. A business line of credit levies no terms or conditions dictating how you spend the money. You can also avail an unsecured line of credit options that requires no collateral. Unlike a term loan, you pay interest only on the amount you loan out.
It is like a credit card with low-interest rates.
Where to obtain a business line of credit?
When it comes to securing a line of credit, you can seek funding from a bank or a credit union. While the lenders are a good source of funding, with low-interest rates and flexible terms, the application process is tedious and time-consuming.
Small businesses can also seek funding from a fintech lender. Even though you may not receive the interest rate you desire, the streamlined application process and the speedy approval process make the bargain worth its value.
Under a secured line of credit, a borrower often uses an asset, like a home or car, as a collateral guarantee. Commonly accepted collateral certifications include deposit, savings account, etc.
Breaking down the procedures into simple steps.
- Selection of a lender
- Compilation of necessary documents
- Filling out the application
- Identifying collateral and having it approved
- Wait for the review by the loan lender
- Close on the line of credit.
Just like a credit card, a line of credit can impact your lending score. A good credit score helps in securing monetary aid. Depending on the lender, a line of credit is also subjected to maintenance fees decided by the lender. The borrower can be subjected to late or return fees too. If one fails to make timely payments or carries a high balance over time, it can accrue damage to the borrower’s credit score.
Maintaining a business is often hard. There will be stances where you will be caught between a rock and a hard place financially. Choosing the right lending option is your best bet for a secure business future.