How to Apply for a Business Line of Credit
Funding a business with credit is much different than taking out a personal loan. In order to be approved for a business line of credit, the applicant must meet the minimum requirements of being in business for at least six months and earning at least $50,000 in annual revenue.
Preparing For the Bank Visit
An applicant for a business line of credit must bring identification and financial documents with them when they meet with a loan officer. The documents include a driver’s license, bank statements, balance sheets, profit, and loss statements and personal tax returns. The applicant must also provide their credit score and a voided business check.
It’s important for the applicant to know how a business line of credit works. Similar to a credit card, it’s a form of revolving credit in which the applicant receives a maximum cash advance that can be used over and over after paying off the balance. Another advantage to this type of borrowing is that the applicant only pays interest on the amount borrowed and not the entire credit line.
A business line of credit provides cash for short-term loans and is considered more flexible than other types of financing. Some of the common reasons for a business line of credit are to cover payroll, purchase supplies or pay for equipment maintenance.
Credit Card vs. Business Credit
Both a business line of credit and a credit card are forms of revolving credit yet are very different. While a business line of credit provides a cash advance immediately put into the borrower’s bank account, a credit card merely allows the borrower to use credit to make purchases. Credit card companies also provide cash advances, often at higher than usual APRs and interest rates.
Credit cards and business credit can be used at the same time. Both forms of credit are common and can help a business get through struggling financial periods. Some companies use a business line of credit as a backup to a business credit card. Both forms of credit can be used to build higher credit scores. Similar to a credit card, a business line of credit is unsecured, meaning no collateral is required.