A business line-of-credit is essentially a loan tied to an account that you can withdraw money from as you need in the operation of your business. This type of loan is another way of obtaining short-term financing for working capital. A line of credit, LOC for short, comes with a limit to the amount of the loan. This credit limit is based upon many factors. Several of the primary factors that set the credit limit are: the size and capacity of the lender’s LOC program, the kind of business you are in, the size of your business and its’ revenue volume, your financial statement and credit rating and the purpose of the LOC.
A line of credit can be extended to a business, government entity or individual. Both banks and non-bank financial institutions can issue various kinds of lines of credit.
A secured bank line-of-credit is probably the easiest to obtain since your business assets will secure the loan. Some acceptable assets are company equipment, your company vehicles or other property of value. Secured lines-of-credit can have credit limits as high as several million dollars. The value of your business and collateral will have to be substantial in order to obtain credit limits in this range. Find out more about the new BLOC secured by real estate here:BLOC
A business credit card LOC can go as high as $1,000,000 for your business operations.
An unsecured bank line of credit can provide from $10,000 to $1,000,000. The size of the credit limit will be determined by the strength of your business and your financial statement.
You may also be able to get a non-bank line of credit from a credit union, commercial lender or similar financial sources. A stockbroker line-of-credit is another form of secured line of credit. In this case, securities are the collateral for the loan.
A major advantage of obtaining a line-of-credit is that you only pay interest on the portion of the loan amount that you have used. If you have a $100,000 line-of-credit and you use $25,000, you only pay interest on the $25,000. You also have $75,000 “in the bank” to use if and when you need another infusion of capital into your business.
A LOC gives you access to the same amount of money that you would receive a loan but in much less time.
You will usually get a lower interest with a line of credit than you would with an unsecured term loan.
Once your LOC is approved, you have the ability to access the funds by debit card or checks as needed.
First, determine the size of the line of credit that you will need. This seems obvious but many people have approached lenders without a clear idea of how much money they need and for what purposes.
Secondly, prepare a clear one to two page statement of why you desire a business line-of-credit and how you will use the funds in your business.
Third, Fill out the Line of Credit application and provide any and all financial information required by the financial institution.
Apply for a Line-of-Credit
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