A business line of credit is typically an unsecured revolving line of credit that is tied directly to your business checking account. This can make a substantial amount of cash available to your business when you need it. Business lines of credit can be used to provide cash to help your business take care of short term needs.
Credit are lines are not tied to specific uses so they can be used for any need such as inventory, working capital, capital equipment or being able to take advantage of any opportunity. A business line of credit allows you to make fast decisions rather that having to wait on long turnaround loan approvals. That can mean an opportunity gained rather than an opportunity passing by.
Business lines of credit normally offer competitive interest rates depending on your business’s credit rating. Therefore, it is extremely important that your business has strong business credit scores with all three national business credit reporting agencies (Dun & Bradstreet, Experian Smart Business Reports, and Equifax Small Business Financial Exchange) before you apply. The rates are typically variable (adjustable) and based on some index off of the prime interest rate.
Most business lines of credit are considered an unsecured line of credit. That means your business is not required not required to provide collateral to secure the loan. Lenders are able to do this by reviewing your business credit reports, business tax returns, profit and loss statements and business bank statements to establish the amount they will lend and if they will approve or not. Business credit scores typically have to be in the 80+ range, time in business normally two years or more, a bank rating of at least a low five (maintaining $10,000 in the business bank account at all times for at least the last four consecutive months), and with profit statements which indicate that your business can service the new debt payments.
Most lenders will require an automatic deduction from your business checking account as the method of payment. This makes it easy to make payments on time and will help your business to further build strong business credit scores. A bank line of credit places your business "on the map" for all other lenders signalling to them that your business is for real and a safer bet to make future loans.