There are times when money is tight for every business. A business line of credit is one resource that they might be able access. You can use the money from a credit line for many purposes. Small business owners usually apply for a line of credit when they are in an urgent need. It can be used to pay for payroll, inventory, equipment repairs, or any other need they might have.
Business Lines of Credit
The business line of credit functions in the same way as a card. This “revolving” line of credit allows the business owner the flexibility to borrow as often as necessary from the loan. The money can be borrowed again once the payments have been made. The money can be used as long as payments are made on time.
What is the Business Line of Credit?
The repayment terms and ability to borrow against the equity of the loan are very flexible for business lines of credit. You can borrow more if you have the ability to pay it back. Many business owners will open a line of credit for their business and borrow against it only what they need. They can borrow more money in the future as they pay down the loan. As long as they make their payments on time, the credit line will remain in good standing.
Requirements to get a Business Line of Credit
Most lenders require that a business is open for six months before applying for credit. The lender and the amount of credit requested may have different requirements. The ability of a business to repay the loan will be also questioned. Sometimes, a minimum of $25,000 may be required each year to show that you are able to pay the monthly payments for the line. Examine your credit history. Before you approach your bank to get a line of credit for your business, make sure that your credit score is in good standing.
Business Line of Credit vs. a Business Loan
A business loan and a line of credit are different in that the business loan offers a lump sum of money and is repaid in full. A business line of credit allows the business owner to borrow against the money as necessary. The business owner can borrow the money until the principal amount is sufficient to cover the loan. The credit line will remain open as long as the payments are made. A business credit line offers many benefits that go beyond traditional business loans. A business line of credit can help a small business grow. If a company hits a slow patch, a solid line of business credit gives them the flexibility to continue moving forward.
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