Business Line Of Credit|The Ins And Outs

How Does A Business Line Of Credit Work?

It is an every day occurrence that we at Small Business Capital US are asked by a business owner: "How does a business line of credit work?" 

It's a great question! 
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With various different types of lines of credit available it can get a little confusing. There are literally books written about each different type, but we are not going to write a book here, just a short version to make the picture more clear.
There also seems to be a great deal of confusion about how to qualify for a business line of credit. We will also address that in this brief article.

THE BASICS OF A BUSINESS LINE OF CREDIT

A  business line of credit will have an interest rate, for example 8.5%. It will also have a term, for example 12 months. The interest rates and terms can vary depending on the profile of your company, and your personal credit. 
But let's talk about the mechanics of how it works. We will use an example of a 100K line of credit, with an 8.5% interest rate, and a 12 month term. Some lenders will require that you draw at least half up front. So let's say that you draw 50K from your line of credit. Once you take the draw, it creates it's own 12 month contract at 8.5%, so you are only paying for the amount of money that you are using at the time. That contract is now set up for 12 months of payments paying off the 50K at 8.5%. You can pay it off early with no penalties for early payoff, and when it's paid off it is available to draw again immediately. 

Every increment that you draw from the 100K line of credit creates it's own contract at 8.5% for 12 months. Once again, you are only paying interest on the amount that you are using. 
The business line of credit is very convenient when you need working capital fast
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Qualifying For A Business Line Of Credit
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Many business owners have gone down to the bank and applied for a traditional business loan, which requires good credit, lots of documentation, and collateral. It will also require at least 2 years in business and good cash flow. Most business owners get turned down for these loans and then are left wondering, how am I going to qualify for funding for my company.
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A business line of credit will have similar qualification guidelines.
The biggest difference is that the line of credit does not require collateral or piles of documentation. You will still need to have a good company profile and good credit. Another big difference is that the unsecured line of credit can be obtained in 72 hours vs 2-3 months for a traditional loan. Here are a few requirements to use as a guideline when thinking of a line of credit.

1) Company time in business at least 1 year.
2) Minimum monthly deposits of 50K or more.
3) 640 or above FICO score.
4) No NSF's or negative balances in the last 90 days.
5) Business Checking Account.

As you can see, getting a business line of credit is really not that hard. If you don't have the above requirements you may have to start the relationship with the lender with a business cash advance and work your way into a line of credit. 

At Small Business Capital US our goal is long term with every client. We try to qualify every client for a business line of credit first. If the business line of credit is not an option at the time, we will still provide the working capital needed until we can transition you to a line of credit.
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Our process is simple, straight forward, and put's you in direct contact with the underwriter who is working on your funding, which avoids any miscommunications. If you would like to find out if you qualify for a business line of credit you can provide some basic information by clicking on the "Start Here". button.

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Start Here