This is especially true for businesses that sell goods or services, where the sales are seasonal, cyclical, or inconsistent. Even thriving, healthy businesses can have these kinds of issues, and it can make paying for routine expenses and bills extremely challenging.
Small business loans are an option, as are business credit cards. But, the ideal solution for managing these kinds of challenges can often be found in a small business line of credit.
Learn more about this kind of small business funding option, the ideal uses for a business line of credit, and the different kinds of credit lines available in this helpful guide from BizFly Funding.
Understanding a Business Line of Credit
A business line of credit works something like a cross between a credit card and a small business loan. It doesn’t provide an up-front amount of cash for the business to spend. Rather, it provides a credit limit (much like a credit card).
The business can borrow against this limit, up to the limit, in whatever amounts it desires. Then, they pay interest based on the outstanding balance, and make repayments on a schedule specified in the business line of credit terms.
Whatever the remaining line is (maximum minus outstanding balance) can be borrowed against again, and that can continue as repayments are made, so long as the total outstanding on the business line of credit remains below the maximum on the line.
In practice, it works much like a credit card account does (just without the card in most cases – a business line of credit usually provides cash deposits/proceeds to the business’ bank account).
You only pay interest on the amount outstanding, rather than on a whole lump-sum like with a small business loan.
And there is a great deal of flexibility in terms of repayment, re-borrowing, and adjusting the amount outstanding based on the particular income and expense needs of the business.
This allows for multiple ongoing and variable expenses to be covered easily. This is in contrast to single, larger purchases, which would often be better served with a small business loan.
Ideal Uses for a Small Business Line of Credit
A line of credit provides businesses with funding for expenses and operational activities, as well as a safety net or buffer. Most businesses, especially newer small and medium-sized businesses, don’t have a hoard of cash sitting in their bank account.
It can be beneficial to have the extra liquidity/working capital that a business line of credit affords to hold in reserve for projects that go over-budget, seizing emergent opportunities, staffing increases, extra inventory purchases, and other expenses.
Some of the most frequent uses of business lines of credit for small business funding purposes include:
- Short-term working capital needs.
- Managing cash flow, e.g., providing sufficient small business funding to pay bills and expenses during periods of uneven receipts, or in the gap between capital outlays for inventory or other expenses and when those outlays yield receivables/revenue.
- Making everyday purchases of minor assets or consumables.
- Funding business growth projects and variable expenses such as marketing.
- Forming a credit bridge between other loans and small business lending options that may take longer to apply for and receive funds from.
- Augmenting a small business loan was a buffer or safety net, hedging against unexpected downturns in business, upticks in expenses, and so on.
- Up-staffing for seasonality, business expansion, or other non-fixed expenses.
- Having the liquidity to deal with setbacks, disasters, and other problems in a business.
Like many small business funding products, a small business line of credit doesn’t typically come with any restrictions on what the line of credit can be used for.
This leaves it up to the business’ management team to decide how best to deploy the line of credit, to maximize the potential of this valuable financial instrument for their particular business and unique financial needs.
Secured vs. Unsecured Lines of Credit
One consideration regarding lines of credit is whether or not it is secured or unsecured. A secured line of credit requires collateral – that is, assets like property, plant, and equipment – to be put up to protect against default on the debt that may be incurred.
This lowers the risk for small business lending firms, but increases the risk of asset loss on the part of the small business and small business ownership.
By contrast, an unsecured line of credit does not have any collateral requirements. This makes it riskier for the lender, and consequently, means higher interest rates for the small business.
Most small businesses looking for small business lines of credit prefer unsecured lines, so that they do not end up risking their buildings, inventory, equipment, vehicles, or personal property.
Qualifying for a Business Line of Credit with BizFly Funding
Business lines of credit are available from both traditional lenders, such as banks, and non-bank small business funding companies such as BizFly Funding.
BizFly Funding offers a full range of small business funding options, including small business lines of credit, small business loans, short-term loans, debt consolidation loans, and merchant cash advance services.
With this full suite of options, small businesses can choose the best small business funding options for their particular needs.
Qualifying for a business line of credit with BizFly Funding is easy, and most customers are approved in just hours, with funds available in as little as 1 business day thereafter.
To qualify, borrowers must:
- Have been in business for at least 6 months as of the time of application.
- Have a 650 or higher credit score.
- Generate at least $10,000 per month in revenue.
Business lines of credit up to $250,000 are available, depending on the particular qualifications and financials of your business.
What’s more, all the BizFly Funding lines of credit are unsecured, meaning there are no collateral requirements. Find out how much your business can access with a small business line of credit by applying online today at BizFly Funding.
