One of the best ways to help boost capital for your business to find business funding. Although you may have plenty of questions on how much you’re needing and what terms you need, they are vital towards finding the perfect business loan for your company. One of the most popular business loans that brands are going after in today’s market is known as a revolving line of credit and offer all sorts of flexibility geared towards small business financing. So, what are you waiting for? Let’s learn more about the best loan for your business.
Revolving Line of Credit
A revolving line of credit gives you a set amount of funds to help boost and maintain your business. When you do need to use the set funds, all you have to do is withdraw from it, and you only have to pay interest on what you spend. Once you completely pay off what you spent, your credit line is readjusted to the original amount it started with, hence the whole “revolving” part.
Why Your Business May Need One
Here are some key advantages to using a revolving line of credit for small business financing options:
- It can be used for a variety of different business purposes
- You only pay interest on what you spend
- Easier to apply and get accepted than other business loans
- Capital is always available
- Since it’s easier to pay off, it can help boost your credit score
What to Look out For
Here are some key disadvantages to using a revolving line of credit that small business owners should keep in mind:
- Lenders might seek out collateral during the approval process
- Interest rates may be higher than on a regular loan term
- Risk of ruining your credit if the line of credit is spent too fast or too much
- You could need to prove what you need to spend the line of credit on which can be tedious at times
Obtaining a Revolving Line of Credit From a Bank
Banks have changed dramatically in the past decades, after all, 10 years ago you were only allowed to seek out lines of credit from your local bank. With alternative financial lenders in the market, you can seek out lines of credit in physical and online institutions. However, it’s wise to keep in mind that seeking out a line of credit is still one of the safest ways to obtain one.
A revolving line of credit is one of the most affordable, but hardest to obtain from a bank for small business owners. Although it may seem like the best offer around, since it may be unsecured you may be a big risk to a financial institution if your business is new or if you have a poor credit score. If you feel that you still have time to improve your financial history of yourself and your company, it’s best to wait it out until you know you’re ready to apply.
Using a Business Credit Card as a Revolving Line of Credit
Getting a business credit card is the best alternative to a revolving line of credit. It’s more portable, you can set lower spending limits, and the money you send can be easier to track. Not to mention, it can be much more affordable than a revolving line of credit.
Especially if you’re just starting up and don’t qualify for a revolving line of credit, taking out a business credit card can be a great option for you and your company. Plus, there are plenty of perks and rewards for spending your credit.
In addition, business credit cards also do not require collateral which may be less stressful to relatively new business owners. Especially if you do not have collateral to offer in the first place.
Time to Apply
Opting in for a revolving line of credit may not only be a smart business move but can also save your business starting out. For the application process, here are the top four main factors that lenders use to approve you for a revolving line of credit:
- How long you’ve been in business.
If your business has been around for years, lenders might try to offer you a larger credit line than those who are just starting out, where you may need to pass more strict requirements. The rule typically dictates that you have to be in business for at least six months to get approved for a revolving line of credit.
- Your overall credit score.
For any loan or line of credit, you will always need to prove that you are not a risky borrower. Especially for a revolving line of credit, your credit score needs to reflect well on your business and be in the 620-700 range at the very least to qualify. If you are under that range, you may have to undergo much higher rates or have your application declined.
- Your annual revenue.
The reason your lender needs to know how much you make each year is to determine how much credit you should be given. After all, it wouldn’t be a smart move for them to give you a higher advance than what you make in a year since it could cause you to fall back on payments.
- Average bank balance.
What better way to find what kind of risk you are to a lender than seeing what’s actually in your bank account? Giving your average bank balance can also give your lender a sense of total credit to give you and understand the overall profitability of your business in its current state.