Today we will be discussing today will be discussing some basics of a business line of credit. We will discuss how they are structured, what some of the common requirements are, and what to expect from interest rate and fees. Finally we will talk about what types of lenders you can expect to get these loans from.
Structure: business owner credit is structured very much like a credit card. Unlike a traditional business loan, where you will be approved for a one time disbursement of cash for specific purpose, a line of credit authorizes you to borrow money up to a certain amount. You can borrow up to this amount again and again assuming that you have credit left available to you.
Requirements: typical requirements for a credit line of this type include having an established business credit score as well as established revenue. You will have to show that you will be able to repay the loan based on your current circumstances and that you are generally a good credit risk. You may also be asked to provide additional accounting documents on request and you should make sure to have the entire documentation ready before beginning the application process.
Interest Rate and Fees: interest rates and fees are typically slightly higher than secured loans and are in the range of most unsecured loan types. Depending on your personal circumstances and credit worthiness the rates can vary by up to 10 points. It is also important to note that there typically will not be any interest charged if you repay within your grace period. Grace periods usually extend from 30 days of the time which you borrow money.
Lenders: many different types of lenders will provide businesses with lines of credit. You can get funding from traditional lenders such as banks are major financial institutions, or you can borrow from specialty niche lenders which provide lines of credit in certain industries. The requirements of these two types of lenders are very different as one will follow a standardized guideline any other will evaluate your company on a more personal level based on an understanding of the industry which they lend to specifically.
So how does a business line of credit work? It is structured very much like a credit card in that you are not immediately given funds but instead are authorized to borrow against a certain amount. Interest rates and fees tend to be competitive but not as low as secured loans and lenders of different types will have different requirements for approval.