If you are thinking of securing financial assistance for a new startup business, then look no further than a business line of credit.
What Is a Business Line of Credit?
Unlike a standard business loan, a business line of credit works similarly to a business credit card. You only pay for what you use in a given amount of time (plus interest.) Unlike a business loan, which is a lump sum of money that requires you to pay a specified amount each month (plus interest) in order for the lender to secure return.
Is a Business Line of Credit Worth While?
For a startup business, securing a business loan can be a challenge. After all, a startup usually does not have a large profit margin or return on investment to show potential lenders. A line of credit gives a lower interest rate that is easier to pay on, simply because you as the owner of the credit line, have the spending power. In a nutshell, you decide how much to draw from the line of credit and when you draw on it. This gives you more control of your business’s spending. Some months may be higher, and some months may be lower. A business line of credit allows for a lot more flexibility in a time of financial crisis.
Are there different types of lines of credit?
To put it briefly, yes. You can use a line of credit as a credit card or a checking account. There is also an unsecured line of credit and a secured line of credit. An unsecured line of credit is when the business does not give the lender any type of collateral, so you most likely will receive a variable interest rate on the line of credit. A secured line of credit is the opposite; however, many startup businesses simply do not have the collateral to offer a financial institution.
How Does a Business Qualify for a Line of Credit?
Qualifications for receiving a business line of credit depend on what financial institution you hope to work with for an extended period of time. Some will require a specific credit score. Some will require a business to have been open and receiving a cash flow for a specified amount of time. Be sure to do your research before applying for anything.
In short, a business line of credit can be the financial boost your new startup needs to hit the ground running. Do the research and choose the best one for your business.