Everything You Need To Know About Business Lines of Credit
When you need to borrow money to finance projects within your business, you have many options to choose from. You can apply for a traditional business loan, use a merchant cash advance or apply for a line of credit from your local bank. Business lines of credit are one of the most versatile ways to give your business access to the money it needs. Here’s what you need to know about this financing method so you can use it to your advantage.
How Lines of Credit Work
When you take out a traditional business loan, you receive a lump sum of money from the lender and have to repay that full amount plus interest earned on the loan. This is the case even if you don’t use everything you borrow. When you apply for a line of credit, you’re essentially applying for a loan that you’re able to use as needed.
The line of credit works a lot like a credit card. Lenders will look at your business’s finances to determine how much you’re eligible to borrow at once. This number is your credit limit. Once you get the credit, you’re free to use any amount of money up to the credit limit as needed. After you use that amount of credit, you pay it back according to the terms your lender sets.
Even better, you’re able to use this credit to pay for just about anything you need. There are no restrictions on how you can use the money as long as you pay it back on time.
How To Apply
To apply for credit, you’ll need to show that your business has a history of profits. You’ll want to compile your most recent bank statements, profit and loss statements and any other financial information that shows how successful your company is. As long as you’re able to show that you can repay what you borrow, you’ll likely be able to qualify for credit.
Unfortunately, not all lenders issue credit to businesses. Some specialize in traditional loans only, so you’ll want to shop around. Look for lenders that are familiar with this type of financing and get quotes from several before you make a decision. Look at the interest rates for each lender, the repayment terms and any other conditions they set forth. Choose the lender that offers you the lowest interest rate and the highest credit limit.
Now that you understand how business lines of credit work, you’re ready to apply and start using this method to get your business the money it needs to grow and thrive.
