Business Credit Lines & How To Use Them
We’ve all heard that cash flow is king. It’s true. If you don’t have cash flow, your business can become stagnant. You could even lose your business. We all go into business knowing that we have a good plan or idea but there can be unforeseen stumbling blocks that can derail our plan quickly. That’s where a business line of credit (LOC) comes into play. If used with wisdom, it could not only save your business but help it grow into your dream.
How it Works
A business LOC is a revolving loan that provides flexibility that you don’t get with a regular loan. These let you carry a balance indefinitely, based on an annual review.
A regular loan or term loan gives you a one-time lump sum to be paid over a fixed period or term.
A LOC has a fixed limit which can be used, up to the limit, as needed. Interest is calculated only on the amount you use.
Usually the LOC’s are unsecured and based on your revenue, length of time in business, and credit score. For higher LOC amounts the lender usually requires collateral.
What To Use It On
Small business owners who need the flexibility of a LOC typically use them on:
Inventory
Larger unexpected expenses (ie equipment repairs and insurance audit balances)
Covering a gap in cash flow due to slow paying accounts receivable or sales
Meet bonding requirements
Where To Get It
Banks usually have more favorable interest rates but have stricter qualification than an online lender. If you have good credit and business history, we recommend starting at your bank.
Some Alaskan options are:
If your bank isn’t an option, there are several online lenders that have looser qualifications but higher interest rates. This could be the best option for you to start off with if your business is newer, you don’t have an established relationship with your bank, or your credit score isn’t where it needs to be.
Some online options are:
Kabbage – Credit line up to $250,000
BlueVine – Credit line up to $250,000
Ondeck – Credit line up to $100,000
Prepare To Apply
If you are ready to apply for a business line of credit, there are some things to gather first. Here is a list of items you should have on hand, to make the process faster, before you apply:
Business Tax Returns
Personal Tax Returns
Bank Statements
Profit & Loss Statement
Balance Sheet
Voided Check
Driver’s License
Business License
EIN Letter
You may not need everything in the list, however, since each lender has their own process and requirements its best to be prepared.
It is better to be prepared before an event happens that could disrupt or potentially sink your business. We feel that it is a smart decision to pay the annual fee to have a credit line and potentially never use it, than to be caught without access to cash flow.
