As a business owner, you know that when an opportunity comes knocking, you have to answer the door almost immediately. There’s no time to wait—and often that means securing access to capital quickly. While there are a lot of options available to access funds—from credit cards to working capital reserves to loans—there’s another great option that’ll allow you to draw funds whenever they’re needed: a revolving line of credit.
This funding option is an excellent resource for small business owners looking to cover a variety of different short-term needs—and one that can help you grow your business to the next level.
A line of credit (sometimes referred to as a LOC) is a funding solution offered by lenders such as banks, credit unions, and alternative lenders like Backd. Essentially, a line of credit provides you with a set amount of capital that can be used when and how you need it. You can borrow some or all of the money—up to your approved limit—at any time, and you’ll only pay interest on the amount you spend.
If you’re unfamiliar with lines of credit, you may be wondering: Can a business use a line of credit? Absolutely! In fact, it’s fairly common for businesses at all stages to use a line of credit because the flexibility they offer ensures that companies can take advantage of opportunities to grow on their own schedule. Common use cases include:
Making new inventory purchases, especially to prepare for a seasonal or holiday rush
Acquiring new equipment to expand offerings
Funding advertising campaigns, like when bringing a new product or service to market
Supporting payroll or other expenses during a seasonally slow period
In short, a business line of credit can cover larger purchases that will support your overall business.
A revolving line of credit is a specific type of line of credit that allows you to pay down the amount you’ve borrowed and re-borrow money again. Revolving lines of credit are often provided by lenders without a set expiration date. As long as you stay in good standing and continue to make payments on time, your account will remain open. In other words, it works just like the name suggests: money will revolve in and out of the line of credit as you use it and pay it back.
With revolving lines of credit, the only restriction is that you cannot borrow over the maximum amount you’ve been approved for. Otherwise, you can use it however you like—for whatever you like—even if your balance isn’t fully repaid.
At a high level, a revolving line of credit works similarly to a loan or credit card. You will choose a lender and fill out an application. Upon approval, your lender will decide what your limit is, what the interest rate will be, and what kind of repayment schedule you will follow. It’s important to talk to your lender during this process to ensure that the terms they laid out fit your needs.
When looking at a revolving line of credit vs a credit card, the main differences are primarily about the terms and application requirements.
Terms: Most lines of credit have higher credit limits and lower interest rates than traditional credit cards, meaning that lines of credit are perfect for larger purchases that you intend to pay off over time. Credit cards, on the other hand, do generally offer a grace period before interest kicks in—meaning they are much more suitable for smaller purchases you plan to pay off each month.
Application Requirements: Applying for a line of credit is slightly more involved than applying for a credit card. You’ll often be asked to provide documentation of your company’s financial situation, like monthly or annual revenue or tax documents, for a business line of credit.
Let’s take a look at a revolving line of credit example for a locally-owned boutique that sells clothing and gift items.
Going into the holiday season, this company wants to increase their inventory. They apply for—and receive—a revolving business line of credit for $20,000. They use $15,000 of their line of credit to purchase new inventory for the rush season, leaving them $5,000 left in their line of credit.
Within just a couple of months, they pay down $5,000 of the money they borrowed for new inventory, bumping their line of credit balance up to $10,000. Now, they can spend some or all of that $10,000 to renovate their store font.
Essentially, as they pay down the money they used, their account balance will grow and they can continue to borrow money—up to their credit limit of $20,000–as needed.
The process of getting a revolving line of credit for your business can be fairly simple—once you have all the information you need. There are three important things to gather as you get started. You’ll need to know the lender you wish to work with, their line of credit requirements, and your business’ financial information.
To begin, you need to select the right lender for your business line of credit. There are a variety of options, like banks, credit unions, and alternative lenders like Backd. How do you narrow down your options? Start with the details, including:
Maximum funding amounts
Just like you would for a mortgage or loan, it’s important to shop around to find a lender that’ll meet your needs. For example, Backd offers competitive interest rates for revolving business line of credit amounts from $10k - $750k, making it a great option for a variety of business needs!
Additionally, the best line of credit lenders understands that when you need a business line of credit, you likely need it fast. Some lenders can take weeks or months to get you access to the capital you need. For a lot of business opportunities, this simply won’t work. Backd gives you access to funds on your timeline. That’s why the application process is quick and easy, getting you approval in as few as 24 hours!
Each lender will have a different set of requirements to qualify for a revolving business line of credit. As you narrow down your list of lenders to one, ensure you meet eligibility standards. Common requirements include:
Meeting a certain credit score, typically at least 600
Bringing in a minimum amount of monthly or annual revenue
Living or operating your business is a certain geographic region
Having been in business for a set period of time, often at least one to two years
Once you’ve selected your lender and checked to make sure you meet their eligibility requirements, it’s time to gather the financial information you’ll need to fill out an application. Different lenders will require varying pieces of information. In general, you may need to include:
Tax returns, including both personal and business documents
Financial statements for the past year
Your business plan
The amount of money you’d like for your line of credit
What is a good amount of revolving credit to have for your business? It all depends on your specific situation, including what you intend to use your revolving business line of credit for and how much you can afford to pay back weekly. It’s important to look at your financial statements to determine the right number. And when in doubt, talking to a financial advisor or your lender can help you determine an amount that works for your business.
Backd makes applying for a business line of credit easy! With a four-step process, you can have access to funds in as few as 24 hours. Here’s how it works:
To get started, simply submit an application and answer some basic information about your funding needs and your business. You should be prepared to answer questions about how much funding you’re looking for (lines of credit are available for between $10k and $750k), what you need the funding for, the annual revenue of your business, personal details, and more. Applying is free and easy, and your credit score won’t be affected!
Backd requires line of credit customers to meet the following requirements:
1+ year in business
$300,000 minimum annual revenue
Be a US-based business
Once you’ve completed the application, you can expect a decision in less than 24 hours! Upon approval, you will be able to access and withdraw your funds through Backd’s online dashboard. Your online dashboard also makes it a breeze to track your outstanding balance over time, so you always know how much you have available.
Using that same online dashboard, you’ll be able to make weekly repayments to your revolving line of credit. At Backd, repayment terms are generally 6-12 months with incredible rates.
As you make payments, your credit will automatically reload. Is a revolving line of credit good for businesses? You bet. For businesses, one of the many benefits of a revolving line of credit is that your credit automatically reloads as you pay your balance. You don’t have to wait until you’ve paid down the entire balance to borrow, meaning you can take advantage of opportunities as they come.
Backd works hard to empower and support small businesses with alternative funding options. Backd business lines of credit offer a quick application process, same day response, competitive rates, and flexible terms.
Get started by filling out an application today.