What Are Credit Lines For Business And How Does It Work?
by US Business Funding Funding source for all stages of businessFor every small business owner who wants to gain
access to a pool of funds, the credit lines for business is the best source.
This will help them to grow their small business or to manage uneven cash flow
with great ease. It is a more flexible source of arranging finance as compared
to bank loans. Unlike bank loans, there is no lump-sum disbursement of finance
is done under this source of funding. Business owners are given the flexibility
to borrow a defined amount of money and they need to repay with interest only
the amount they withdraw. This will help them to manage their cash flow gaps
and arrange more working capital.
How
Credit Lines for Business Works?
It is considered as a revolving line where business
owners get access to a stated amount of funds which is generally used for
short-term working capital. Business owner can keep using the fixed amount of
money and repay the amount with interest according to his condition. The line
will stay open for him as long as he remains able to pay back the money with
interest on time. The limit of money will keep on increasing if the owner keeps
on paying back the money regularly on time.
How
to Qualify?
To qualify for a business line of credit, small
business owners need to show their financial records to the lender. Business
should be running with good revenue and holds a history of financial records of
at least five years. The essential information that needs to be submitted
includes personal and business tax returns, business license, business
financial statements, and standard financial documents such as profit and loss
statement, and balance sheet.
Credit
Lines for Business vs. Term Loan
Term Loan is the fixed amount of money that is given
to the applicant in a lump sum and interest is paid until the entire amount is
repaid. These are usually given for funding large projects or a large piece of
equipment. Before lending term loan to business owners, lenders usually
evaluate the creditworthiness by looking at the credit profile of business.
Credit lines for business allow an applicant to
borrow a specific set of money whenever the need arise and repay it. It is the
best source of funding short term business needs and usually preferred when the
full line of credit is not needed immediately.
How
to Use the money received?
The money received from business line of credit can
be used for the following purposes:
1. Short
term working capital to cover expenses or for payroll.
2. Save it
for unexpected expenses such any sudden damage in any equipment.
3. Use it
for unique opportunities such as purchasing goods in bulk when price goes down.
Summing up, a Business line of credit or credit
lines of business is one of the simplest financing sources to keep pace with
the short-term business expenses.
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Created on Mar 15th 2019 13:38. Viewed 284 times.