Small businesses sometimes require outside sources of financing to handle unexpected expenses or difficulties with cash flow. Business lines of credit are powerful answers to these funding needs. Here are some essential details about business lines of credit to help you determine if they offer the right solution for your company.

Business Lines of Credit Basics

Unlike traditional business term loans, lines of credit offer you an amount of funding from which you can draw in times of need. You borrow as much as you require, up to a predetermined limit, and you pay back the loan in weekly or monthly installments. It is revolving, in that once you have paid back the amount you have borrowed, it is once again available to you.

Business Lines of Credit Variations

Business lines of credit may be secured or unsecured. When they are secured, some sort of collateral is necessary, which the lender can claim if you fail to pay back the loan. You don’t need collateral for unsecured lines of credit, but the rates of interest are usually higher.

Advantages of Business Lines of Credit

The main advantage of a business line of credit is that you have a source of funding available when you need it, and you only owe interest on the amounts that you have taken out. Because the credit line is revolving, you have the same funds available again as soon as they are paid back. You can use a line of credit as a supplementary source of funding in addition to a traditional term loan.

Applying for a Business Line of Credit

You can obtain a business line of credit from traditional or online lenders. Depending on the specific lender, the documentation required may vary, but you will at least need personal identification, your credit score, two years of tax returns, and two or more years of bank statements.

How to Use Business Lines of Credit

Business lines of credit are extremely versatile. For instance, you can use them to supplement your cash flow, handle your payroll, pay rent and utilities, purchase equipment and inventory, take care of emergencies, and finance expansion.

For more advice on business lines of credit, contact Lionheart Commercial Capital.