Getting Money For Your Business

A business line of credit gives a business owner available cash anytime they run short of funds. It can be used to purchase inventory, supplies, pay bills, meet payroll and as a general emergency fund.

A business line of credit is not a loan. It’s more of a “loan in waiting” as you only use it when you need it. The aspect that makes it better than a loan in the eyes of many business owners is that you do not have to pay interest on the money until you actually start dipping into the credit line. Plus, you only pay interest on the portion you actually use. It’s sort of like a financial safety blanket that keeps you from having to use higher interest vehicles such as business credit cards to meet your financial obligations.

The first place most businesses go to get a business line of credit is at the bank or credit union they use for their company checking, savings and investments. Simply ask to see a manager at the bank. Timing is important though. You may want to ask about it when your bank account has some measurable assets along with consistent deposits. This proves your company is making money and is financially sound. If you are a new company with little assets, be prepared to show your business plan to the bank before getting a business line of credit approved.

If you prefer not to use your existing banking institution, you can apply online for a line of credit. Many big banks offer credit lines from $25,000 to $100,000 to businesses right online. Rates are usually variable for this type of credit and are based on the current prime lending rate.

There are basically two types of credit lines, unsecured and secured. An unsecured line of credit means you don’t have to back it with collateral such as business assets. A secured line of credit usually requires some type of blanket lien on your business assets, investments or real estate. Obviously an unsecured line is preferable, but you need a solid credit score, business history and some assets in order to qualify for an unsecured line of credit.

When applying for a business line of credit, many banks will want to see that you’ve been in business for at least two years and they’ll want to look at your past two years business and personal tax returns. There are exceptions of course, but for the most part, lenders with less restrictions and requirements will have higher interest rates.

Once you start dipping into your credit line you’ll start paying interest on the part you’ve used. Many banks will automatically deduct your payments from your business account so be sure to ask if that’s their policy. If so, you’ll want to make sure you subtract payment amounts from your account so you don’t end up having to borrow even more when your account runs low. It can be a cycle that’s hard to break if your sales slow and you have lots of financial obligations to meet.

A business line of credit is worth applying for if money is tight and you don’t want to tap into your personal assets in an emergency. Just make sure you shop around for the best rates, rather than taking the first offer you see, especially online.