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.

Using A Small Business Line of Credit

The Number-One Reason to Open A Business Line of Credit Is to Gain Access to Short-Term Funding. Most Businesses Use These Funds to Support Financing for Operational Expenses Like Supplies and Payroll or For Increasing Inventory. Cyclical Businesses Often Rely on An Unsecured Line of Credit as A Source of Off-Season Working Capital.

Unlike Many Small Business Loans, An Unsecured Line of Credit Is Not Designated for A Specific Purpose or Purchase, It’s A Good Choice for Small Businesses Looking for Ways to Better Manage Cash Flow. Funds Are Typically Drawn from The Line of Credit by Using A Business Checking Account, A Small Business Credit Card or Even A Mobile Banking App.

A Small Business Line of Credit Is Typically Offered as Unsecured Debt, Which Means You Don’t Need to Put Up Collateral (Assets That the Lender Can Sell If You Default on The Debt). Many Unsecured Lines of Credit Come with A Variable Interest Rate and Are Available for Sums Ranging From $10,000 To $100,000.

Applying for A Business Line of Credit Is Easy. You’ll Decide Which Line of Credit Is Right for Your Business and Then Fill Out an Application Either Online or With A Business Banker. If You’re Interested in Putting Up Collateral in Exchange for A Lower Interest Rate, You’ll Need Business Assets Like Commercial Real Estate.

To Prepare to Apply, Gather Your Business and Personal Tax Returns, Financial Statements, Articles of Incorporation and Other Legal Documents.

Frequently Asked Questions

Get the Answers you Need to Common Questions About Business Line of Credit. Everything you need to know about Business Line of Credit and How your Business can Qualify.

How does a small business line of credit work?
Business lines of credit have a current payment due that is equal to the sum of finance charges, bank fees, other charges plus up to 1% of your new balance; rounded to the next highest dollar, with up to $50 minimum.
What Is Required for a Business Line of Credit?
Personal credit score: Ideally 660 or higher.
Annual revenue: $25,000 or higher.
Time in business: Ideally six months or more.
Collateral: To secure your line of credit.
Current debt schedule: To determine if you can afford to pay back the line of credit if you draw from it.
How long do you have to pay back a business line of credit?
The usual repayment period for a long-term business bank loan is… Usually about five to seven years. Like with any long-term loan, the repayment period with a long-term business bank loan is contingent on the lender.
Is line of credit good for business?
A line of credit can be a great asset to your business. It allows you the flexibility to draw funds when you need it, and you only pay interest on what you use.
What is the purpose of a line of credit for a business?
A business line of credit (LOC) is a revolving loan that allows access to a fixed amount of capital, which can be used when needed to meet short-term business, needs. A LOC is one of the tools a business can use to finance short-term working capital requirements, such as: Purchasing inventory.
Do you need collateral for a line of credit?
Personal lines of credit are usually unsecured, meaning you don’t need to use collateral to take out the line of credit. Secured lines of credit are backed by collateral, such as your house or a savings account.
Does a line of credit count as debt?
Loans and lines of credit are types of bank-issued debt that depend on a borrower’s needs, credit score, and relationship with the lender. Loans are non-revolving, one-time lump sums of credit that a borrower normally uses for a specific purpose.
Does business line of credit affect credit score?
A business loan can affect personal credit. If you personally guarantee a business loan, your credit will be affected. If you’re a sole trader or run a partnership, your finances will also be affected by a business loan. In such instances, your credit scores will reduce if your business delays payments or defaults.
Can a business have multiple lines of credit?
You can have more than one line of credit at a time, and you probably will have several throughout your life, such as student loans, mortgage and credit cards. As long as you can service your debt payments, there is no theoretical limit to number of accounts you can have at one time.
Is a business line of credit considered income?
When a business loan is received by a company, it’s not included as taxable income. In turn, when that loan is repaid, you are not able to deduct loan principal payments. You are simply paying back the money you borrowed, not the income spent. However, you may still be able to make some deductions.
Can you use business line of credit for payroll?
Business lines of credit can be used for a variety of short-term needs, such as managing cash flow, buying inventory or covering payroll.
Does a line of credit affect mortgage?
For many home buyers, paying down a line of credit may improve the borrower’s TDS. By paying off the line of credit, their debt-to-income ratio drops, and this increases the amount they can borrow on a mortgage. In other words, paying down a line of credit can increase your mortgage affordability.