Business Line of Credit: What is it and How to Apply

Many business owners understand the importance of credit. Business credit may be in terms of money or goods to be sold and paid for later. Business owners who want a large injection of cash can opt for a business line of credit. It can also be used to help stabilize cash flow, buy inventory, or even cater for an emergency expense. But what is a business line of credit, and what do you need to apply for one?

A Business Line of Credit

A business line of credit is a type of loan offered to businesses where they need money but would not like to take a traditional business loan. The difference between a line of credit and a business loan is that with the line of credit, you can borrow and repay as many times as you wish. The only stipulation is that your business is in good standing financially and that you repay the borrowed amount in time.

A business loan, on the other hand, is money lent out to your business that has to be repaid at a stipulated date. Banks and other lenders will usually let you borrow more money before you fully repay your business line of credit but will not let you do so with a business loan.

Getting a Line of Credit

There are two options when businesses want a line of credit; they can go to traditional lenders or search online. The difference is that online lenders will often charge a higher interest than traditional lenders. That said, many of these lenders will need to see your books. Here, they will check to see that you have strong revenue and a few years of good credit history. Sometimes, they may ask for collateral if you are requesting a larger sum, but this often applies to traditional lenders and not their online counterparts.

As for the documents needed, you will require business and personal tax returns, business financial statements, a balance sheet, profit-and-loss statements as well as the business’s bank account details.

If you decide to go with online lenders and choose Advanced Point Cap, they will require fewer documents than this and usually approve your line of credit faster than most other lenders do. 

Using Your Line of Credit

The most common use of a business line of credit is short-term funding. Some of the areas funded include buying inventory, handling payroll, and supporting supply operations. Some businesses can use their line of credit as their working capital especially when they have an off-season.

Difference Between a Business Line of Credit and a Business Credit Card

Even though business credit cards are also lines of credit, they are different from business lines of credit in some ways. For example, a line of credit will usually have a higher limit than a business credit card. Business credit cards are also uniquely suited for the needs of newer businesses which may not have enough revenue to qualify for a business line of credit.

If your business needs some cash, it would be a good idea to get a business line of credit. These usually have a higher limit than business credit cards and can be used to settle any business-related expenses.