If you own a small business, or you are planning to launch one, there’s a good chance you will need some form of financing to get started.
One of the options you may want to look into further is a business line of credit. But what is this, and how should you go about applying for one? Here’s what you need to know.
Business Line of Credit Overview
With a line of credit, you are given a credit limit, which is determined by the lender, and you can then draw against this as and when you need it. This is different from taking out a business loan where you receive the full amount as a lump sum.
Why Get a Line of Credit Instead of a Loan?
The main reason to go for a line of credit instead of a business loan is if you don’t need the full amount all at once. If you take out a $50,000 loan, you will start paying interest on the whole amount. But if you have a line of credit, you only pay interest on what you borrow.
This gives you more flexibility to take out what you need when you need it, which might be more convenient in your situation. If you don’t need all the credit all at once, it could be a better option.
It’s also fast to get access to capital once you’ve sorted out the credit line. You can access it when you need to, which makes it more convenient.
Key Considerations when Applying
First of all, you have to decide what you want when you apply for a line of credit for your business. Do you need access to credit fast? If so, a small business loan may be the fastest solution.
However, if you don’t need access to all the credit at the same time, a line of credit could be better. Some online providers may provide faster access to credit than banks.
Choose the Most Suitable Lender for Your Situation
The traditional lenders are banks and credit unions, but you might also be able to borrow from online lenders.
The main thing to consider is the requirements of the lender. Traditional lenders do not tend to be as flexible as online lenders, and banks often have higher requirements for lenders to access their loans.
If you want to go to a bank, you may have to have an excellent credit record and an established small business. If you are just starting out, it may be the best option to go with an online lender.
No matter which type of lender you decide to go with, always research the market carefully because lenders all have different requirements and different rates.
Your primary aim should be deciding upon the best one to contact where you will have the best chance of success. While online lenders may be more flexible than banks, they all vary in their exact specifications as well as their interest rates.
Traditional lenders also tend to have higher limits. If you need access to more credit, this can help. But if you only need a small amount, it may be easier and more convenient to use an online lender.
Start Looking into a Business Line of Credit
The option you choose will ultimately depend on your situation, the amount of credit you need, and how fast you need it. Use the details explained above to decide upon the type of credit that is most suitable for you, then start doing your research and comparing the lenders to find the best solution for your needs.