Business Line of Credit
The Only Business Line of Credit Guide You’ll Ever Need
The biggest advantage small business owners have over larger corporations is the ability to stay lean, to stay flexible, and to take advantage of new opportunities as they become available.
Small businesses are agile, can pivot on a dime, and can move in completely new directions as the market dictates – something that gigantic and sluggish operations could never do. It might take huge companies months and months to check course and change direction while small businesses take full advantage of the opportunities they have to ignore.
On the flip side of things, the biggest drawback small business owners face is an inability to gain access to the small business loans, cash, and capital they need to make the most of these opportunities on the fly.
Cash flow for small businesses is always tight. It’s always lagging just a bit behind where entrepreneurs want it to be. Without an injection of cash when it’s needed most, a lot of small business owners have to settle for pivoting a bit later than they would have liked to – after the opportunity has diminished or disappeared completely.
Traditional lending institutions like local banks and credit unions aren’t a lot of help, either.
After the Great Recession (right around 2008) the overwhelming majority of traditional lending institutions decided that they weren’t going to stomach the risk of dealing with small business owners any longer.
Small business owners that wanted to take advantage of these kinds of loans had to jump through all kinds of hoops, had to have picture-perfect credit, and had to prove that their businesses had already been successful – usually for a number of years.
That’s an impossibility for new entrepreneurs in the overwhelming majority of small business owners out on the front lines today.
Thankfully though, nontraditional lenders have filled the vacuum created by banks and credit unions and offer fantastic financing packages to entrepreneurs looking to make their business dreams a reality.
Business lines of credit have become some of the most often utilized forms of nontraditional lending, and for good reason. They offer all kinds of flexibility, they allow you to prevent weekly, and they give you a lightning fast injection of cash and capital that allows you to leverage new opportunities and grow even when your cash flow would have held you back.
Of course, it’s not a good idea to simply jump on top of any business line of credit opportunity that comes down the pipe.
By utilizing the inside info contained within this quick guide you’ll be able to better navigate all of the options you find yourself presented with.
Make the most of the resources we share below and you’ll have no trouble whatsoever finding the right business line of credit for your needs, even if you’re looking for a business line of credit bad credit entrepreneurs have been holding out for ever since traditional lenders said no way!
Let’s dig right in.
What Exactly Is a Business Line of Credit, Anyway?
The easiest way to wrap your head around a business line of credit is to simply think of it as a business credit card, without the actual credit card itself.
When you work with nontraditional lenders that offer this form of financing the you will be signing up for a revolving line of credit. You’ll be given a “lump sum” amount of credit that you can take advantage of, a line of credit that you can access over and over again as long as you continue to make payments on the outstanding balance.
Here’s how it works:
Let’s say that you have applied to an organization offering business line of credit bad credit opportunities to entrepreneurs with less than perfect credit history.
The nontraditional lender has decided to offer you a line of credit good for up to $100,000, but you only need $10,000 right now to purchase new equipment so that you can grow your business. That means you’ll still have access to another $90,000 in credit, and once you pay back the $10,000 that you have borrowed (as well as any interest you have incurred along the way) you’ll have that full $100,000 line of credit to draw from again.
The beautiful thing with these kinds of unsecured business line of credit opportunities is that you will be able to make the most of them without paying interest on the whole figure.
In the example above, you’ll only ever pay interest on the $10,000 you have used and not on the full $100,000 – which helps entrepreneurs better manage their finances and their cash flow going forward.
Unsecured business line of credit financing packages differ significantly from term loans, maybe the most popular kind of business loan entrepreneurs take advantage of these days.
With a term loan, you are going to gain access to that same lump sum figure of cash that you have been approved for. Unlike with a business line of credit, however, you’re going to have to make payments on that loan that carry interest for the entirety of the sum. Not just the $10,000 you might have used already in the example we highlighted above.
So even if you have received $100,000 on a business term loan but only used $10,000 to purchase new equipment you’ll still be paying interest on the full $100,000 – even with $90,000 still in reserve.
Obviously, those term loan payments are going to be a lot higher than if you had moved forward with unsecured business lines of credit.
Why Would I Want to Move Forward with a Business Line of Credit?
Because unsecured business line of credit opportunities are so similar to credit cards, a lot of people – especially first-time entrepreneurs – wonder whether or not they are better served getting a business credit card as opposed to moving forward with nontraditional lenders.
The biggest difference here is that with a business credit card you will have a total line of credit you can borrow against, but you aren’t going to receive a lump sum payment directly into your business bank account that you can start pulling from immediately.
Instead, you’re going to have to charge anything you are financing directly to that card and deal with the skyhigh APR and repayment penalties that business cards almost always carry with them.
On top of that, should you need to take advantage of the cash advance opportunities of a business credit card you’ll almost always pay skyhigh penalties there as well.
Neither of those conditions are going to come into play when you move forward with the best business line of credit opportunities available.
As far as the overall benefits of a business line of credit are concerned, the biggest one of the bunch has to be the fact that you’ll only ever pay interest on the cash that you actually use.
There’s something comforting in knowing that only the cash you take advantage of to build and grow your business will ever have interest charged against it, allowing you to be a lot more strategic with your business finance decisions.
You don’t have to worry about getting hammered by skyhigh interest payments every single month, you don’t have to worry about any repayment penalties or fees, and you don’t have to worry about interest payments that far outpace the principle – forcing you into a repayment loop that never lets you get a head.
On top of that, you’re also going to benefit from the almost instant access to the funds you have been approved for with a business line of credit.
Instead of having to jump through hoops with traditional lenders that might have you on the sideline waiting for approval for weeks or even months, you’ll usually be able to get an approval for a business line of credit (even if you have bad credit) inside of 24 hours to 48 hours.
After being approved, the money is going to be immediately wired over to your business bank account for use and you can start to deploy it any way you see fit.
That’s another of the biggest advantages that bad credit entrepreneurs are looking to make the most of when they are approved for these kinds of loans.
The ability to use the money you have received through a business line of credit for ANY business purpose, without restriction, isn’t something that happens with all of the nontraditional loan options out there today.
You’d be surprised at just how many nontraditional lending packages carry all kinds of restrictions on how you can and cannot use the money that you have been lent. Obviously, small business owners looking for maximum flexibility aren’t going to be all that excited about being told how they can or cannot use their funding.
Because nontraditional lenders are the ones that make the most (and the best) business lines of credit available it’s possible for entrepreneurs with less than perfect credit to take advantage of these opportunities.
A business line of credit bad credit loan is going to carry the same kind of interest rates, repayment terms, and loan fees as a business line of credit given out to someone with good credit history – helping to level the playing field a little bit for entrepreneurs with a few spots on their record that might have felt discriminated against by more traditional lenders.
At the same time, even unsecured business line of credit opportunities given to entrepreneurs with bad credit are going to have an impact on your credit history moving forward. Make sure that your business line is always repaid, and that you pay it off as quickly as possible, and you’ll be able to watch as your credit score improves – sometimes a lot faster than you would have thought possible.
This can be a game changer for entrepreneurs that have been roughed up in the past (particularly during the Great Recession) but are looking for ways to change things around and move forward in a more positive direction.
Making the most of a business line of credit that reports to all of the major credit bureaus can have you leveraging new financing opportunities for more traditional lenders a lot sooner than would have been possible previously.
Be Aware of the Drawbacks of Business Lines of Credit
Not all is sunshine and roses when it comes to unsecured business lines of credit.
For starters, some nontraditional lenders are going to ask that you resubmit your application and your application documents every single time you want to draw from the funding you have received.
This usually only happens with business line of credit bad credit lending packages, the kinds of lending packages that are available to entrepreneurs with really rough credit histories. If you’ve been approved once for a line of credit, however, the odds are pretty good that you will continue to be approved moving forward.
It’s just another pain in the backside and can delay you from taking advantage of opportunities that might be particularly time sensitive.
Secondly, not all lines of credit are unsecured business lines of credit.
If your credit history is particularly rocky, or if you haven’t been in business for all that long, a nontraditional lender may require you to put up some form of collateral to secure this lending package. What that collateral may be or what the final figure of that collateral might come up to will be entirely dependent upon your specific situation.
It’s important to realize that not all lenders are going to treat your credit history the same, however. If you are asked to secure your line of credit with a loan you might want to look elsewhere for this type of financing.
But if a handful of nontraditional lenders are saying you’ll have to secure your line of credit with collateral, the odds are pretty good that’s the only way you’ll be able to move forward.
Closing Thoughts
At the end of the day, the right business line of credit may be able to make all the difference for you as a small business owner.
Quick approval, infinite flexibility, and very favorable repayment terms combined with low interest rates make these financing packages as attractive as any other from nontraditional lenders.
You’ll obviously want to make sure that you do all of your research into diligence before you dive right in. Really dig into the specifics of the business line of credit you’re looking to take advantage of, particularly when it comes to repayment terms and potential collateral, before you sign on the dotted line.
Always do business with reliable, reputable, and trustworthy organizations, too. The nontraditional lending space can be pretty predatory for small business lenders, but it doesn’t take all that much digging to separate legitimate operations from fly-by-night lenders looking to separate you from your hard earned cash.