The Covid-19 outbreak in 2020 proved the need for businesses to be flexible and ready for anything. Even when there isn’t a global catastrophe, small businesses often struggle when first starting up. A small business line of credit provides the cash flow to smooth over some issues. However, adapting to changing markets or getting established takes money that not all business owners have on hand.

Getting a line of credit is the way to get the necessary cash flow for times of growth or struggle. It’s different than a traditional loan with flexible payment terms and access to continued cash flow if required. Let’s take a closer look at the details regarding a line of credit.

What is a Business Line of Credit, and Why do You Need One?

A business line of credit works more like a credit card than a traditional loan. You are approved for a specified limit but only take out what you need. Interest is charged on the amount you took out instead of the complete approval. With a loan, you receive the lump sum upfront and pay interest on the total amount.

The amount of money used through the line of credit is repaid over time, giving flexibility to the business owner. Interest accumulates once you withdraw money, and the amount you pay back, minus interest, is available for re-borrowing. The lender will cap how much you can borrow, just like a credit limit. The line of credit is subject to annual renewal and credit review to ensure the borrower is a reliable investment.  

A line of credit is perfect short-term funding for maintaining inventory, paying employees, and handling more oversized orders. It creates access to funds to ensure steady cash flow throughout the year. If unexpected expenses arise or you need to cover supplies before a customer pays, a line of credit provides the cash to protect your company.

Why Should a Business have a Line of Credit?

Flexibility

• Access the cash you need when you need it. Borrow, repay, repeat, without having to get reapproved every time you need to borrow funds. The repayment structure is flexible and makes funds available whenever you need them.

Control

• You control when and how much you borrow within the pre-approved limit. Cover gaps in cash flow, operating costs, and other challenges when you need to instead of waiting for approval.

Approval

• Getting a line of credit doesn’t require collateral or a perfect credit score. It’s an excellent alternative to a traditional loan if you struggle to get approved.

Business Credit

A line of credit can help you achieve and maintain a good credit score. Making the payments on time and keeping the account balance low builds recognition and makes you more appealing to lenders.

Cash Outflow

When you have frequent cash outflows, it can be hard to determine what funds you need in advance. A line of credit allows you to withdraw more or less money depending on the situation.

Business Growth

Businesses must be adaptable to keep up with competitors and continue positive growth. A smooth cash flow gives a business the flexibility to adapt and take advantage of new, unexpected opportunities.

Business Line of Credit Requirements

Different financial institutions have additional requirements to qualify for a business line of credit. It’s important to ask what the requirements are from your lender of choice. Then, you can apply a few similar conditions to your company, making it a little easier to qualify.

The general business line of credit requirements:

• A personal credit score of 660 or higher
• Annual revenue of $25,000 or higher
• At least six months of business under your ownership
• Collateral to secure the line of credit- not all places require collateral depending on the amount approved for
• Current debt schedule to prove you can pay back what you draw from your credit
• Essential information like your ID and Employer Identification Numbers

Small Business Line of Credit with Nufi

Whether your business is having financial trouble or you just want to keep it running smoothly, Nufi is here to help. As a financial services company, we aim to provide businesses with profitable solutions that suit their unique needs. Our expert data analysis and problem-solving help you find a solution for even the most challenging issues. We provide lines of credit to help you achieve your business goals.  Contact us today if you have questions or want to learn more about how a line of credit can help you!

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