An Introduction to Business Lines of Credit
Unsecured lines of credit are important to small businesses, especially to those looking to build their credit quickly. Credit lines are typically accessible in amounts ranging between $1,000 and $100,000, from a variety of institutions including traditional banks and lenders. Alternative financing has seen a growth in these lines over the past few years, too. Like business credit cards, lines of credit give you purchasing power and short-term reusable financing. Unlike credit cards, though, they typically involve a cash draw on a fund instead of an electronic transaction via card. This makes them very useful for purchases from suppliers that require cash payment, making them even more versatile than cards.
One of the reasons unsecured lines of credit are so popular is because their interest rate tends to be a bit lower than that of credit cards. Like cards, credit lines are awarded based on the financial health of the company, its current debt-to-income ratio, and its level of income. Most companies qualify, but startups and companies that do not do a large volume of business may find their initial line is quite small, around the size of a personal line.
When you’re looking for a credit line provider for your company, make sure you look for a financer who is prepared to grow with your business. That way, even if your initial qualification is smaller than you had hoped, you will have an easy path to expanding the line as you demonstrate your business has increased its sales volume. Most providers of unsecured lines of credit will be prepared to work with you in this regard.
Sometimes, businesses try to access credit lines when credit cards would be a better fit, or vice versa. If you’re trying to figure out which one is the right fit for your business, it helps to think about why you want the credit. Cards are great for small expenses, petty cash purchases, online purchasing, or repeated payments, because they are designed for it. Credit lines, on the other hand, are more of a cash advance. They won’t consolidate miscellaneous expenses onto a statement like a credit card, but they can be used to finance purchases a card can’t reach. They can also be accessed for raw working capital when you need it, and business credit cards are not designed for that.
Keep the features of each credit product in mind as you decide which is right for your business.