Do you need a ready source of working capital for your business? A revolving line of credit can provide a buffer for times when cash flow isn’t sufficient to cover expenses. It’s the most reliable back up in emergencies and seasonal slowdowns. Find out what the business line of credit requirements are—and how this flexible financing option can help you.
Lack of cash and capital are concerns for about one-third of small business. But with a line of credit, you’ll always have enough money to:
Unlike funds from small business loans, which disappear after you use them, the money in a credit line is always available.
You only need to apply once to get ongoing access. And because you can withdraw money as needed, your business remains secure even when unexpected expenses arise or customers don’t pay on time.
Having a business line of credit also keeps you prepared for growth opportunities. You never know when a lucrative deal might come along. When it does, you can draw on your line of credit to make the investment without compromising cash flow.
You can fund specific plans for growth in the same way, as your business reaches new milestones and requires more capital to expand.
There are long term and short term options available. It’s a more flexible option than a business credit card, as you’ll get more funding to spend and repay over a longer period of time.
How much should you request from a lender?
To understand how to determine a business line of credit amount, you need to know some basic financial metrics. These include your daily cash needs, cash usage and cash sources.
Your cash conversion cycle – the average time between getting an order and receiving payment – is also important. These numbers compare available cash to current expenses to show how much capital your business needs to stay running.
A revolving line of credit is structured to provide funding up to a given amount – your credit limit. Instead of getting the full amount at once, you withdraw money when you need it and make payments only on what you draw.
You can draw as many times as you want up to the credit limit, which is a much safer option than trying to use multiple loans of various sizes to cover your expenses. Paying back what you draw replenishes your available credit, giving you renewed access to funds.
You’ll make payments based on the lender’s structure and terms.
For example, a credit line with one-year terms gives you 12 months to pay off the amount you draw with interest. Payments may be monthly, bi-monthly or weekly.
This is different from a business loan, where you have a fixed payment schedule starting when you get funded and must continue making payments until the end of the loan terms, regardless of how much money remains.
Be aware that some lenders charge draw fees or require minimum withdrawal amounts from a credit line. Others charge inactivity fees if you don’t draw on the line at least once during a given period of time.
Check the terms of the financing agreement for these stipulations before signing to minimize additional fees, which could impact your company’s bottom line.
You may qualify for an unsecured line of credit—in which you won’t have to put up collateral to qualify.
When you apply for a credit line, lenders may evaluate:
The exact business line of credit requirements and limitations for each of these factors depend on the lender.
Banks generally ask for extensive documentation to evaluate the financial status of your business and determine the level of risk associated with lending. Online lenders have more lenient qualification requirements. They’re generally more willing to extend funding to small business owners with low credit scores, or those with only 6 months in business.
An unsecured business line of credit can offer additional peace of mind by allowing access to funding without the need for collateral. However, some lenders may require a personal guarantee or file a lien against your business assets as an alternate way to ensure they get paid.
If you have a clear plan for how to use the funding and can demonstrate that your business is strong enough to take on debt, you should be able to get a line of credit from just about any source.
However, if you’re heading up a startup, have a shaky credit history or need funding in a hurry, an online lender may be the best option.
National Business Capital & Services offers a flexible, scalable business line of credit for small businesses with at least three months of operating history and $120,000 or more in annual sales.
You don’t need a stellar FICO score to qualify, and you can get access to your credit line in just a few hours. Credit limits range from $10,000 to $5 million.
You can link your bank account to learn your interest rate and repayment terms faster than ever, without ever submitting a credit report.
With no collateral requirement and the option to increase available credit as your business grows, National’s true revolving line of credit can be tailored to your needs. Get started by applying now!
National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!