How Business Lines of Credit Work and How to Qualify
When it comes to business expenses, small businesses can face new challenges almost every day. During the first few years of growth, nearly every week there may be an unexpected change or unplanned expense. Lines of credit can be the perfect lifeline to keep your business afloat during these uncertain times. Whether you’re just launching a new small business or going through a season of change in your company, find out how you can use business credit to smooth any rocky financial situations.
Just like a personal line of credit, business credit can be used to take out money as you need it. Unlike a business loan, credit allows you to wait and avoid costly interest payments until you know you are need additional financing. This makes it one of the most flexible and versatile options for businesses.
However, that flexibility comes with a price. Business lines of credit typically have higher interest rates than traditional loans. There’s two basic options: secured and unsecured. A secured line of credit is backed by an asset. You’ll usually be able to take out a line of credit worth up to a certain percentage of the asset. Secured lines typically offer better interest rates and are easier to apply for. Unsecured lines of credit, on the other hand, rely only on your credit history to determine whether you’re eligible or not. This means that these credit lines can carry less risk of losing your assets, but are much more difficult to become approved for.
There are a wide variety of perks, benefits and features that come with any line of credit. Some business lines of credit offer fixed interest rates, while others adjust the interest rate based on a specified index. Every line has a spending limit, but some are far higher than others. Other rewards, just like a personal credit card, can add additional incentives for taking out credit and paying it back on time.
In order to qualify for a business line of credit, you need to provide a business credit score and financial history. You’ll typically also provide a personal credit score, particularly if you have a small business. Each specific lender has different rules on how to apply, so find the credit option that suits your specific situation and learn how to apply today. Expand your business rapidly and use credit to smooth over any hardship, slow seasons or unexpected crises.