When it comes to business loans, it doesn’t get much bigger or better than a business line of credit. A business line of credit can provide a business owner – especially the owner of a small business – with the financing they need to keep their bills and employees paid, and continue operation even in slow and hard times for business. They allow lending institutions such as banks to keep the business on a short credit lease while determining the viability of the business in the marketplace.
There is some good news about business line of credit; mostly that it can be pretty easy to get, even for a relatively new business. The bad news about business credit is that the financial institution – such as the bank or credit union – will need some form of personal guarantee or a co-signing arrangement before they will offer a business line of credit.
The lending institution will typically require the business to have been operating for at least two years before they issue a business line of credit. This is due to most businesses having trouble surviving past their first two years of business. After a business moves past this threshold, the bank is more likely to consider them a good candidate for lines of credit and loans.
Business lines of credit are used to manage cash flow in the short term, to make a special purchase, to restock the inventory, buy supplies, or any other reason that can be justified to the bank as being useful to the business. Business lines of credit are not typically offered to pay employees their salary or bonuses. Nor are they commonly offered as a means to pay creditors from other banking arrangements.
The funds from a business line of credit are offered to the business through a range of different means. Sometimes the money is made available through a revolving cash account that the business can borrow against up to certain amounts. Sometimes the money is offered as a credit card the company can use to make required purchases. Some business lines of credit need only a minimum payment each month plus interest to pay off, while others can only be paid off through interest.
If you want to find out whether or not you can qualify for a business line of credit, then it’s highly recommended that you speak to the bank or credit union that you already do business banking with. The people there will know you. They have an understanding of not just your face and who you are, but they also understand your own personal credit history. Your credit history will come into play in deciding whether or not you qualify for business lines of credit. Banks are most likely to lend money to the customers they already know rather than customers that walk through the door off the street. Having this pre-established connection helps you get the credit that your business needs, and it also helps you acquire the best interest rate for the money you’re working hard to make with your business.