Owning a business is one of the dreams of a majority of individuals due to the “freedom” it offers. Starting small is important to every business. However, most small businesses face the challenge of not having enough cash for their day-to-day running. Thankfully, there is a plethora of funding sources available to such businesses to meet their financial obligations – short and long-term.
A small business line of credit is one of the financial tools available to businesses to meet their unexpected financial obligations. However, some businesses do not know how to get a business line of credit, which is another major issue, particularly for positive cash flow.
A small business line of credit offers the borrower, in this case, the business, access to capital up to a certain amount. The balance on a line of credit is “revolving,” as such, borrowers carry the balance from month to month and interest is calculated based on the amount drawn.
A business line of credit comes in 2 forms – Secured Business Line of Credit and Unsecured Business Line of Credit. Secured business line of credit requires the borrower to provide collateral such as inventory or accounts receivable. Unsecured business line of credit requires no form of collateral and often come at higher interest rates.
Pros of a Business Line Of Credit
Some of the pros of getting a business line of credit include
Relatively Flexible Process
Interest only on the portion of credit used
Lender-borrower relationship
Better Business Credit Rating
Relatively Lower Interest and lower fees
Cons of Getting a Business Line Of Credit
A business line of credit also a couple of drawbacks as mentioned below:
Difficult Application Process
Possible Debt Spiral Situation
Requirements to get a business line of credit
In order to get approved for a business line of credit from a bank, borrowers need to complete a thorough application process with the common requirements including:
Collateral
Business operating time
Financial statements and reports
Profit and revenue
Economic ratios such as Debt to equity, Current ratio, Debt service coverage ratio, and Fixed charge coverage ratio
The information above is a guide to small businesses looking to source for funds via a business line of credit. It is worth noting that there are several other funding options available for businesses to fund their operations.
Media ContactCompany Name: Funding Box CompanyContact Person: Viola D. HayesEmail: Send EmailAddress:4450 Elmwood Avenue City: PhiladelphiaState: PA Country: United StatesWebsite: fdbox.com
