If you’re a small business in need of a little financial assistance, you may be wondering what to do. While you could apply for a small business loan, it may not be the best solution. Loans have strict requirements and require a lot of documentation. The process can also take months. You might not have that kind of time. And, if you don’t meet the requirements, you’re odds of approval aren’t that great.
Fortunately, loans are the only financing option out there. One option to consider is business lines of credit. Here’s what you need to know.
What is a Line of Credit?
A line of credit is similar to a credit card. It’s a revolving source of credit, meaning that the available balance replenishes with each payment. Your lender gives you access to a pool of funds, and you can draw as often as you need up to the maximum available balance. You only use what you need, and you only repay what you take.
Pros and Cons of Business Lines of Credit
Pros of a business line of credit include:
- You have access to a pool of funds that you can use at any time
- You only repay what you use
- You only pay interest on what you use
- Your balance replenishes as you make your payments
- You don’t have to reapply for financing every time you need money
- You build your credit history
Cons of a business credit line include:
- You get smaller borrowing limits than with a loan
- You may find it more difficult to qualify if your business is less than six months old
- Interest rates are higher than business loans
- There’s a potential for misuse
How to Apply for a Line of Credit
Before you apply for a line of credit, you need to make sure your business qualifies. While requirements aren’t as strict as those for loans, you will need:
- A credit score of at least 550
- At least six months in business
- An annual turnover of at least $6,000
If you meet the lender requirements, your next step is to fill out an application. In many cases, you can do this online in a few minutes and get a decision within a couple of hours.
A business line of credit can be a great alternative to a traditional bank loan. You can use it whenever you need it, and you only need to repay the amount you use. You have access to funds at any time, so you don’t have to wait weeks or months for a decision. In short, a credit line can be an incredible asset. As with any other financing solution, be sure to consider all of your options carefully so that you choose what makes the most sense for your business.
