One of the most flexible business loans a small business owner can have is an unsecured business loan known as an unsecured business line of credit. Every small business owner should have one. You should not have to take out an equity loan on your house, or pay the high rates of credit cards to get the cash you need for your business.
What is a business line of credit? It is a credit line that will let you draw funds from it, up to the maximum amount of the credit line. It is a revolving line of credit that works very similar to how a credit card works. These lines of credit are generally for ten thousand to two hundred thousand dollars, depending on how much you qualify for. They also carry a much lower interest rate than credit cards. The APR is prime plus two percent or more, depending on your credit standing. There is also usually a small annual fee for a business line of credit.
You do not have to pay off the amount you borrowed first, if it were not the maximum amount. If you need additional funds, you just write another check from your line of credit and that amount will be added to your monthly bill. A business line of credit saves time,frustration, and is very flexible because you don't have to go back to the bank to ask for another loan or additional funds.
What can a business line of credit be used for? Any business purpose. For example, you can even out a cash flow situation when you are waiting to get paid on goods you have shipped, but haven't gotten paid for yet. You can also purchase a business item that is too small for a regular business loan, but too large for a credit card purchase. Also, it is good to have it for any emergency situation or cash flow problem.
A business line of credit is not recommended for large purchases such as major investments in equipment or real estate. These purchases require a long term business loan tailored for that particular purchase.
How much money should you ask for in your line of credit? Accept the maximum amount offered by the bank. For many people, that could be a scary thought. But it is a good strategy. If you ever want to increase your line of credit in the future, it may be difficult or impossible. The lending policy at the bank may change, the economy could change and make banks less willing to lend, or your credit report could change and make the bank unwilling to increase your business line of credit. If you never need the maximum amount, it's okay. But if you do need it, you already have it available.
Do not wait to get your business line of credit until the time you really need it. By then, your financial situation may make it difficult or impossible for the lender to loan money to you. The old saying that a bank only wants to loan you money when you don't need it has some truth to it. Anticipating and being prepared for future needs or emergencies can mean the difference between being successful or unsuccessful, failure or growth.
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