Business Line of Credit
A business line of credit is like an unsecured credit card businesses get from banks; they have a spending limit, which the bank decides, and they can spend up to that limit per month.
The funds accumulate interest until paid off.
Businesses often use lines of credit for short term funding.
Business Line of Credit Requirements
The requirements for a business line of credit are different from lender to lender.
In general, most lenders require having been in business for at least 6 months, at least $25,000 in annual revenue, and a credit score of around 500.
However, some traditional lenders may have steeper requirements.
How to Get a Business Line of Credit
To get a business line of credit, you must first compare your options and check their requirements.
Once you find one you qualify for, you must gather certain financial documents, such as bank statements, financial statements, and some legal documents.
One you have your documentation and a willing lender, you can apply.
No Doc Business Line of Credit
A no doc business line of credit is like a line of credit offered by banks but it requires less paperwork.
These lines of credit are offered by alternative lenders that operate differently from traditional banks.
These lenders also tend to offer a number of other short-term financing solutions for small businesses.
Stated Income Business Line of Credit
A stated income business line of credit is a revolving credit line for which there is no income check requirement.
These lines of credit offer businesses with limited income history an opportunity to receive businesses financing.
These lines of credit often come with higher interest rates and a collateral requirement.
Business Line of Credit FAQs
Line of Credit (LOC) Definition
What Is a Line of Credit?
A Line of Credit, or LOC, is money lent to an individual or business which the borrower pays interest on.
Depending on the type of LOC, the client either receives a lump sum, or is allowed to “draw against”their line of credit to make purchases, until the credit limit is reached.
Typically lines of credit are given by banks, such as when an individual is issued a credit card.
What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving
Lines of credit will either remain open, or will close, once the loan has been repaid.
Revolving lines of credit are considered “revolving”because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.
In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.
Non-revolving credit usually has a lower interest rate.
How does a Line of Credit Work? Secured vs Unsecured
A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.
Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.