As an entrepreneur, you are always looking to improve your operations by adding new equipment, hiring new employees, or strengthening your business and more efficiency. While there are many ways to do this, some financing options require a long-term commitment, while others may be costly with high-interest rates and fees. A line of credit (sometimes referred to as LOC) can help you manage your cash flow while still giving you the flexibility to grow your business when needed. Here’s how they work and why they’re so beneficial to your business!
The Business Line of Credit Explained
The term line of credit refers to the maximum amount of debt an individual or company can borrow, subject to agreed-upon terms and conditions set by the lender (the bank). For example, a business line of credit allows businesses to borrow money from banks without having to go through filling out loan applications every time they need financing.
Lenders only charge interest on what you use, so even if you have a $20,000 credit line, you’ll only have to pay interest on $5,000 if that is what you borrow. The more you pay off your revolving line of credit, the more cash is available to you.
The business line of credit is a perfect financing tool if your company is expanding and you need to access capital. Your business credit line can be used for any purpose – to cover costs or take advantage of opportunities as they arise. To access funds from a line of credit, you can use business checking accounts, mobile banking, or small business credit cards.
What Are Secured and Unsecured Lines of Credit?
If you are approved for a small business line of credit, the loan will be unsecured, which means that you do not have to put up collateral (assets that the lender could sell if you default). A line of credit without collateral carries variable interest rates and ranges from $10,000 to $100,000. You may need to place a blanket lien on your assets or request a certificate of deposit to obtain credit lines exceeding $100,000.
Applying for a Business Line of Credit
Typically, banks and other traditional lenders require you to submit information about your revenue, bank account information, tax returns, and balance sheet report to approve your business line of credit. In addition, your business must have been operating for the past six months and generate at least $25,000 in annual revenue to qualify.
Other Advantages of a Business Line of Credit
You might improve your credit rating and gain better loan terms in the future if you keep your business line of credit in good standing. For small businesses to build a strong credit history, experts recommend starting with a modest credit line and paying it off quickly.
Your business can benefit from a POM (Peace of Mind) Capital & Funding Services Business Line of Credit if it needs quick access to cash for inventory purchases, short-term capital, supplier payments, or emergency funds. We provide information and assist you in deciding which credit options will work best for your New York small business.
If you want further details about our small business lines of credit, call POM Capital & Funding Services at 631-354-9290 or write to us at [email protected] to schedule a free consultation with our team.
POM Capital & Funding Services is a leading provider of alternative funding solutions for businesses of all types and sizes, offering commercial finance solutions and products to businesses in the Centerport, New York area and throughout the state of New York.