Business Line of Credit
You need to spend money to make money. But if you don’t have money to spend, how can you grow your revenue and ability to reinvest in your business? That’s where a business line of credit comes in—to expand your readily available working capital so you can meet opportunities and challenges head-on.
When it comes to financing a business, owners may tend to consider loans as their first option, but loans aren’t always the best option. Oftentimes, the flexibility and accessibility of a credit line are just what a business needs to secure much-needed funds for whatever comes its way.
Here are just a couple of the situations where a line of credit could help a business adapt by providing cash on hand:
Covering Expenses: Business is often cyclical; you have periods of high revenue and low revenue. You can typically anticipate these periods, but sometimes, you get blindsided. Even when you experience less revenue than forecasted—whether due to a new competitor or changing consumer tastes—you still have to pay wages, overhead costs, and stock inventory. In times like these, having an open business line of credit can help you ensure that you have the funds on hand to cover these expenses. You can pay your employees on schedule, fully stock your shelves, and keep the lights on until more abundant times roll around.
Scaling Operations: Whether adding new products to your roster, expanding your team, or opening a new location, growing your business is an exciting time. You get to help more people, and you have the opportunity for a significant return on your investment. But you need capital to actually invest in the first place. Having access to a business line of credit allows you to get the cash you need now to grow your business and pay it back as your revenue grows.
One of the top advantages of a line of credit is that you can use it to cover any of your business expenses! Before deciding if this is the best option for you, you likely still have a few questions, such as: how does a line of credit work, how do you open one, and where can you find the best provider?
What Is a Business Line of Credit?
A business line of credit is a type of short-term financing in which a business has access to a set amount of cash on credit. As they use cash from their credit line, they have to pay it back with interest. There are two types of business credit lines: revolving and non-revolving.
Revolving credit lines are the most flexible option because they allow the borrower to increase their remaining credit by paying back a portion of what they borrowed. For example, if you opened a revolving business credit line for $50,000, you would immediately have access to the full amount in cash. If you spent $10,000, you would be responsible for paying interest on that $10,000 as you pay it back, and you would have $40,000 left that you could borrow. However, because you have a revolving line of credit, you replenish your limit as you pay back what you borrowed. So if you paid back $5,000, you would then have $45,000 available to spend.
Non-revolving credit lines are still a great option for getting financing quickly, but they do offer less flexibility than revolving credit lines. Non-revolving credit lines don’t replenish as you pay them back. Sticking with the above example, after repaying $5,000 out of the borrowed $10,000 (from the total limit of $50,000), your remaining limit would be $40,000.
To give businesses the most flexibility in how they finance their operations, Backd offers revolving lines of credit so you can gain access to more funding as you pay off a portion of what you’ve borrowed.
Is a Business Line of Credit the Same as a Loan?
A small business line of credit is not the same as small business loans, and a line of credit can often be a better, more flexible financing solution. The key difference between a line of credit and a loan is that a credit line gives you access to cash up to a set amount while a loan gives you the total amount all at once. One way this distinction matter is in calculating how much interest you owe. When taking out a loan, you start paying interest on the total amount. With a credit line, you only pay interest on what you borrowed, not the total amount you could borrow.
Back to the example of gaining access to $50,000 of funding, a loan would immediately pay you $50,000. You would then make payments with interest on that $50,000. If you opened a line of business credit with a limit of $50,000 you might only need to borrow $10,000 to start. That means your payments only charge interest on the $10,000 you borrowed. This makes it more cost-effective to finance through a line of credit unless you need to spend the entire amount right away.
For financing that meets the changing demands of your business, partner with Backd to get approval in less than 24 hours.
How To Get a Business Line of Credit
You can open a business line of credit through a financing institution. Requirements vary from lender to lender and may include: your monthly revenue, time in business, credit score, and location. Here is the business line of credit requirements for borrowing from Backd, for example:
At least 1 year in business
A FICO score of at least 600
A minimum of $25,000 in monthly revenue
Business is based in the United States
Is It Easy To Get a Business Line of Credit?
If you meet the above requirements, opening a line of business credit can be as easy as applying online! One way of increasing your chances of getting approved is to improve your credit score. Businesses can improve their credit score by opening a business account through a commercial bank and taking out a company credit card. When making payments out of your account or paying down your credit balance, the most important part is to make your payments on time.
Backd makes an instant business line of credit a reality. You can apply in 3 minutes and receive a decision within 24 hours.
Can You Get a Line of Credit to Start a Business?
It’s not impossible, but it’s not likely. It’s easier to get a line of credit to help grow a young business because options for financing businesses at the ground level are few and far between. Most lenders will want to see that you’ve been in business for 1-3 years before accepting your application for a line of credit. To get funding for their business, owners often seek answers to the following questions:
How do I establish business credit for the first time? It usually takes up to 3 years for a business to establish a credit score. During this time, you need to open up a bank account for your business that pays your business’s bills on time. In the meantime, small business owners can leverage their own history to apply for credit cards and other financing options.
How long do you have to be in business to get a line of credit? While many lenders want to partner with businesses that have been around for 3 years or longer, Backd works with businesses that have operated for at least 1 year.
Does an LLC have its own credit score? LLCs have their own credit score. One of the primary benefits of an LLC is that it keeps your personal and business finances separate, so seeking financing for your LLC will not impact your personal credit score.
How Much of a Line of Credit Can I Get for My Business?
The maximum limit of your business line of credit depends on which institution you borrow from and how your business satisfies its requirements. Businesses with higher monthly revenue and healthier credit scores, for example, will often have higher credit limits than smaller businesses with a less established credit history.
Backd offers business lines of credit with limits ranging from $10,000 to $750,000. These lines operate on a revolving basis, so paying your balance replenishes your limit and allows you to invest more.
Propel Your Business Forward with Backd
The best business lines of credit are the ones that you have access to when you need it. Nothing’s worse than watching an opportunity as it slips by because you didn’t have the funds to take advantage of it—or struggling to find the working capital to keep day-to-day operations running during an uncertain business period. That’s why at Backd, we offer revolving business lines of credit, so as you pay down your current balance, you have access to more funds—immediately. What’s more, you can get approved in under 24 hours.
Here’s how Backd makes the process easy so you can get back to business:
Online application through the website—in just 3 minutes
Soft credit pull means your application doesn’t impact your credit score
Get obligation-free approval in 24 hours or less
Access your funds—between $10,000 and $750,000—directly from your account dashboard
Make weekly payments during repayment periods of 6-12 months
Continue investing in your business—as you pay down your balance, you can immediately borrow more
Ready to prepare for whatever comes next? Seize any opportunity and overcome any challenge with Backd. Apply now and get approved within 24 hours!