You’d be surprised how common it is for a business line of credit to be misunderstood for a business credit card. While these two products are quite similar in concept, there are many differences between them that could have a pretty big impact on your decision to apply. The Empower Lend team is dedicated to educating business owners on all of the financial products available that could potentially help their business grow. That being said, let’s take a closer look at the differences between a business line of credit and some other funding products, shall we?
Business Line of Credit: The Basics
Everyone knows that a credit card, whether personal or business issue, is a physical plastic card that unlocks the digital door that stores your capital. A business line of credit, however, utilizes the same digital door, but without the plastic souvenir! Both products are actually a line of credit, in that they allow the access to borrowed money that you are responsible for only the amount utilized, not the amount available!
For example, if a business owner is approved for either a $10,000 business credit card or a $10,000 business line of credit and only spends $2,000 – that business owner is responsible to repay $2,000 plus interest and expenses as agreed.
How Does this Differ from Traditional Bank Loans?
A traditional loan is borrowed in a full, lump sum and repaid with accruing interest, penalties and fees in monthly payments. While traditional bank loans can be allocated as needed once received, the application itself is usually completed with specific product purpose. For example, if you are buying a house, you would apply for a mortgage loan whereas if you are starting a business you would apply for a business loan. Credit lines are utilized as needed on various purchases, as needed.
Revolving Business Line of Credit
Business credit lines are beneficial to operations to help cover and combine one-time business expenses as they arise. What truly differentiates a business line of credit from a loan is that the credit line is usually revolving, meaning that as the balance is repaid, the funds become available and accessible again in the credit line.
Are You Qualified for a Business Line of Credit?
Let’s face it, in today’s economy, you need to have multiple revenue streams and/or access to capital to sustain your goals and live comfortably, right? Lenders appreciate consistency when it comes to approving a business line of credit. Maintaining a healthy revenue stream and operation for at least 2 years usually showcases a strong foundation, which is less of a risk for the lender.
Be Prepared. To secure a business line of credit you will need to prove your worth! Lenders will require proof of the information you submit on your loan application. By industry standards, you’ll need to produce verification of personal information and business documents such as bank statement.
Submitting an online business line of credit application can make the process easier, giving you the option to upload your documents and submit with the original application. It can also be advantageous for time management purposes since most business owner handles their accounting matters after business hours, outside of their hectic production times. Completing an online business line of credit application allows you the ability to schedule the best time for you to focus on matters at hand.
Still, not sure which type of business funding is right for you?
Contact an Empower Lend Business Finance Coach – we’re here to help.