If you’re looking for a flexible financing option when you’re in a pinch, a business line of credit might be a good fit for you. This type of loan works like a credit card, where you only pay interest on the amount that you withdraw.
What’s a Line of Credit?
A small business line of credit (LOC) is a financing option that offers access to capital up to a maximum amount. This option is known for its flexibility because it allows borrowers to take out the amounts they need at any time, with interest charged only on individual withdrawals.
Because of this unique arrangement, a line of credit is a type of revolving account. Traditional term loans, whether backed by the SBA or not, have a preset sum deposited upfront that’s repaid through equal payments over time. Lines of credit on the other hand, create a “revolving” cycle where borrowers can withdraw funds up to a set maximum at any time, repay that amount, and withdraw it again.
Typically, lines of credit can be either secured or unsecured. In most cases, they are unsecured loans. This means that the lender doesn’t need any collateral to back the account.
If you’re looking for a line of credit, you’ll commonly find that they’re offered by local banks for smaller amounts than term loans. Other sources to look for funds include alternative lenders available through online platforms.
Qualifying for a Line of Credit
Depending on your preferred lender and the type of LOC you’re applying for, you’ll find varying eligibility requirements. Most traditional bank lenders require good credit, strong revenue, and several years in business. They also usually require applicants to provide financial documentation like tax returns, profit-and-loss statements, and balance sheets to demonstrate their business’s financial health.
On the other hand, alternative lenders may have looser eligibility requirements and lower credit minimums, but they’re more likely to charge higher interest rates and fees.
Lines of credit can come with a steep price. For businesses looking for temporary, small-scale funding, these loans may seem convenient because of their flexibility, but they might not be sustainable in terms of long-term cash flow.
That’s where SmartBiz can help. We specialize in helping our small business customers get to a “yes” on a low-cost, government-secured loan quickly and efficiently. Our streamlined, online application will help you qualify for the funds you need. SBA loans offered through SmartBiz have competitive rates, long terms, and low monthly payments so you can invest in your business growth and achieve your entrepreneurial dreams.
Learn more about SmartBiz by getting started with SmartBiz Advisor today. Even before you apply, you’ll get personalized recommendations and insights that will help you strengthen your lending profile. This free, AI-based service shows you where you stand according to the key criteria our bank partners look for in an application.