Can Businesses Use a Line of Credit?

October 17, 2022
Can Businesses Use a Line of Credit?

Did you know businesses can use a line of credit for expenses when they need support to pay things like payroll, supplies, or inventory? A line of credit is different than an ordinary business loan. Think of it like a credit card, where you have a recurring limit, but only pay interest on your outstanding balance. With a loan, it’s a lump sum and there’s no way to avoid interest without paying it off quickly. But with a line of credit, as you pay back the borrowed money the available funds are reloaded for you to use again. Sounds helpful, right? For small-company owners wanting to cover essential expenses like payroll, equipment, etc., a business line of credit might be the answer.

Backd provides small businesses with a line of credit opportunities so you can take care of expenses when you need to without a loan gaining interest on a large sum.

How to Get a Business Line of Credit

Successfully getting a small business line of credit depends on a number of factors like the amount of funding you’re seeking, eligibility, and the bank or lender you choose to borrow from. You can prepare before you reach out to lenders so you have the highest chance of approval. Follow these five steps to give yourself the best chance of getting a line of credit for your business:

  1. Determine Your Funding Needs You don’t want to overextend your spending and not have the ability to pay it back. Understanding the financial needs of your business allows you to ask for funding within your means. Not only that, but it will help you budget out any necessities, so funds go where they’re meant to go.

  2. Confirm Your Eligibility Typically to receive a business line of credit, you’ll need to consider three elements: your credit history, revenue, and how long you’ve been in business. By having a minimum of one to two years in business, a decent credit score of 600 or above, and good revenue incoming, you’ll be more likely to qualify.

  3. Decide on a Lender To find the right fit for your business, you should research which lenders are available that match your specifications based on your needs and eligibility. You also don’t want to work with a lender that won’t work with you or has negatives, like high interest rates. 

  4. Collect Required Documentation Different lenders require various forms, but you should expect to provide most, if not all of the documentation listed below:

    • Driver’s license

    • Bank statements (revenue, incoming cash flow, and expenses)

    • Financial statements (may include but is not limited to balance sheets and profit and loss statements)

    • Tax returns (prepare at least three years of personal and/or business returns)

    • Articles of incorporation

    • Proof of collateral

    • Voided business check

    • Credit reports

    • Make sure you have these documents ready at the time of application. They will need to be provided before being considered for a line of credit.

  5. Submit Your Application Once you’ve completed the steps to prepare, including determining eligibility and researching a lender, you’ll be able to submit your application. Depending on where you’re applying, it can take as little as a few minutes to complete. 

When you’re prepared to apply, Backd’s application process for a startup business line of credit takes less than five minutes to complete, and you’ll have a decision on your application within 24 hours. You can receive $10k - $250k with great rates, so you don’t have to worry about taking on more than your business can handle.

How Much of a Line of Credit Can I Get for My Business?

Depending on your revenue,  you can receive a significant line of credit for your business. Just like a credit card, the amount you’re able to borrow is tied directly to your revenue and credit score to prevent your business from spending more than it can pay back. The higher your revenue, the more likely you’ll get a higher line of credit. Some lenders require a minimum income, such as $25,000 per month. 

How Long Do You Have to Be in Business to Get a Line of Credit?

Most lenders require your business to have been operational for at least one to two years. However, there are no guarantees you’ll be approved even if you meet the minimum time requirements. When considering eligibility, the length of business operations is only one factor. A high credit score and revenue might give you a higher chance of approval. 

Does a Line of Credit Have an Interest Rate?

Yes, lines of credit typically have pretty significant interest rates attached to them. It’s possible to find less aggressive interest rates after researching different lenders. However, unlike loans or other alternative funding options which charge you interest on the total amount of the capital, you can pay off the line of credit and avoid interest while keeping funds available. If there is no outstanding balance, your business won’t have to pay interest. 

Get Your Credit Backd

Backd approaches funding for businesses differently than traditional banks or credit unions. They plan to change the lending industry by building partnerships–not transactions, implementing technology, and ensuring they have the best financing models for their clients. It’s simple: Backd funds your dreams because they care about you and your business. At Backd, you’ll receive funding solutions tailored to your specific needs, so you can focus on what’s important: running your business. Visit Backd’s website to see if you qualify for a business line of credit today.

What would you do with the right amount of capital?

Working Capital Advance

Easy payment structures offer amounts with fast turnaround, Simple and easy process to access working capital.

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Business Line of Credit

Get instant access to revolving credit with unlimited terms, and the best rates for your business.

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