A line of credit is a form of unsecured business loan. The main advantage of this type of loan is that it allows you to borrow more money than what you may need. This can be used for different purposes such as:
- Expanding your business
- Purchasing equipment
- Paying bills.
A line of credit is usually given to a company by the bank or financial institution. You can also qualify through alternative funding sources some will require good credit while others have programs you can qualify for with lower scores. But always keep in mind the higher scores the better your options will be.
A good business plan can help you qualify for a line of credit but it’s not required
In some cases it can help you get a better interest rate. If you have a business plan it should also include the projected income and expenses for the next 12 months.
Even if you don’t have a business plan you can still create income projections on a spreadsheet.
How Much Line of Credit Can I Get? It Depends On:
- Your business past financial performance
- Current financial status of the company
These two items will play a big part in how much of a line of credit you will qualify for.
What if my company is in a very bad financial situation?
It is best to discuss this upfront with a business funding expert if you are working with one before submitting your application to avoid getting denied and discouraged.
He/she can give you guidance on improving your situation. To learn how to improve your odds click here for more information.
Most lines of credit have a limit of $100,000
You may only need $50,000 or less for now which you can draw and only pay interest on this amount and as you pay back the loan you regain your credit line.
The Financial Institution will check if there is any outstanding debt against the company.
What Is The interest rate?
It is usually lower than that of a secured business loan
The interest rate depends on:
- Draw amount
- Can vary by different financial Institutions
- Which one you choose will depend on your circumstances.
The Financial Institution will also look at the current balance of your checking account. If you have a good balance it will help your approval chances.
If you have a poor balance
- NSF’s (non sufficent funds) it can hurt your approval chances..