Business Line of Credit Basics

Learn about business line of credit basics to meet short-term cash flow needs
By Apryl Beverly Before contacting a lender to discuss financing options, it's best to learn about business line of credit basics. A business line of credit (LOC) is a common way for company owners to meet their short-term working capital needs. In most cases collateral is not required as long as the business owner meets all basic credit criteria.
 

The maximum amount of the unsecured business line of credit for which a business owner will qualify is dependent upon the company’s historical and projected annual cash flow and revenues. Consider the following tips to help you learn more about business lines of credit.

1. Research pros and cons of obtaining a business line of credit.

2. Access funds whenever needed with a business line of credit.

3. Use a business line of credit to create cash flow.

Determine if a small business LOC is right for you

A business line of credit is a revolving product with no fixed terms. In most cases a business line of credit is the best option for short-term cash flow needs. For example, if you are obtaining long-term working capital or are purchasing a fixed asset, a business term loan would be a more appropriate financing tool.
Try: Check out Build Business Credit, a website that focuses on providing credit and other financial information to small business owners, for information on an unsecured business line of credit. Alternatively, you may consider visiting Business Finance, an online provider of unbiased financial data, to obtain information about secured business lines of credit.

Use a business credit line to finance short-term business objectives

Business owners can borrow off of the total business credit line incrementally or in one lump sum. To qualify, financial institutions will generally require a personal statement, certified business and personal tax returns for the past three years and other supplemental information that demonstrates the financial stability of your company.
Try: Check out Financial Web, an online provider of financial education, to obtain extensive details on small business lines of credit and other business loans products. Visit the U.S. Small Business Association website to obtain basic information about business lines of credit and how you can accurately assess your financing needs

Expand your company with a business line of credit

A business line of credit can be used to finance a range of business expenses, such as equipment or a new product or service offering. While criteria will vary by financial institution, business line of credit lenders will generally want to ensure that your company is financially sound and profitable.
Try: The National Federation of Independent Business (NFIB) is a non-profit organization that provides a wealth of information to small businesses on business lines of credit and other financing tools. You may also consider obtaining information from Accomodative Financial Solutions more than 140,000 lenders to ensure small businesses obtain accurate information on business lines of credit product offerings.

• Be sure to watch out for high interest rates when applying for a small business LOC. While business lines of credit rates will generally be higher than business loans, they rates should be significantly lower than credit card rates.