Business Financing Programs
BUSINESS LINE OF CREDIT
What is a Business Line of Credit?
What is a small business line of credit?
A small business line of credit has more in common with a small business credit card than with a small business loan.
Like a small business loan, an unsecured line of credit provides a business with access to money that can be used to address any business expense that arises. Unlike a small business loan, however, there’s no lump-sum disbursement made at account opening that requires a subsequent monthly payment.
A small business line of credit is subject to credit review and annual renewal, and is revolving, like a credit card: Interest begins to accumulate once you draw funds, and the amount you pay (except for interest) is again available to be borrowed as you pay down your balance. As with a credit card, the lender will set a limit on the amount you may borrow.
Most entrepreneurs would rather have a conventional credit line versus a loan. The reason for this is with a credit line, you only pay on what you have outstanding. So, if you have a credit line for $100,000 but only need $5,000, you can use that line for your $5,000 worth of purchases, and only pay on that amount you use.
And as you pay down the credit line balance, you can then re-use those funds again and again. Plus, you can take cash from the line from a debit card, which you cannot do with credit cards unless you are willing to pay high cash advance fees.
Most important, you should have good personal, bank, and business credit.
Line of credit lenders vary in what they will ask for. Also, if you do not use a line of credit, you may have to pay a fee for not using the line of credit.