Disclaimer: Information in the business line of credit articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the business line of credit articles often covers financial products that Biz2Credit does not currently offer.

Growing a business is hard, especially if you’re not earning a profit right away. Every business needs healthy cash flow and working capital to meet business expenses and earn revenue. But when you’re ready to grow, that regular income might not be enough.

Many small business owners pursue business financing to expand their businesses. While traditional business loans from banks and credit unions are useful, they’re not always accessible for new businesses or business owners with bad credit. For startups and other new businesses, a better alternative may be a business line of credit.

In this article:

• Learn what a business line of credit for new business is and how you can use one.
• Understand why an LOC is a great business loan for new businesses with no credit.
• Explore the advantages of a line of credit over traditional loans.

What is a Business Line of Credit?

A business line of credit is a type of business financing that looks a little like both a business loan and a business credit card. With a line of credit, you get approved for a maximum credit line that you can draw upon to make purchases. Like small business loans, it has an interest rate and is subject to credit approval. Unlike a loan, however, you only pay interest on the amount you use, rather than the full loan amount. Like a credit card, as long as you pay back what you spend, the full revolving line of credit will be available to you.

Many lenders have time in business requirements for term loans, making these lump sum, upfront payments inaccessible for new business owners. However, small business line of credit lenders have far less stringent eligibility requirements (although they come with higher interest rates). As such, business lines of credit for new business are great options for business owners with bad personal credit scores or startups with little revenue history or credit history.

The top business lines of credit may offer competitive introductory offers with low or 0% annual percentage rates (APR). Business lines of credit for new business can be a significant asset when you’re just getting started.

How Can You Use a Business Line of Credit?

Like a bank loan, a business line of credit for new business is a cash equivalent. This means that you can use it for virtually any business expense. Since startups often have many unexpected expenses, a line of credit loan for small businesses provides flexible, short-term funding to navigate financial emergencies and invest in growth.

New businesses in virtually any industry can benefit from a business line of credit. Some examples of how you can use a business line of credit for new business include:

• Acquire inventory and raw materials: New businesses have a lot of startup expenses, and a business line of credit can help them purchase inventory, raw materials, equipment, and much more.
• Increase cash flow: Invoice- or contract-based businesses like creative agencies or cleaning companies can use a business line of credit to cover operational expenses like payroll and supplies when there’s a lag in accounts receivable.
• Pay emergency expenses: Any business that relies on machinery or equipment, like construction companies or restaurants, will be thrilled to have a line of credit if something breaks down and needs to be repaired.
• Manage seasonality: Seasonal businesses, like retail stores or restaurants in resort towns, can use a business line of credit to cover expenses in the slowest times of the year.
• Take advantage of opportunities: Whether you operate a private labeling business and get a chance to purchase supplies at wholesale prices, you’re an e-commerce company gearing up for Black Friday, or something else, a business line of credit gives you business fast access to cash to take advantage of business opportunities.

Advantages of Using a Business Line of Credit

While traditional loans or revenue-based financing can be great assets for small businesses, lines of credit have a few distinct advantages for new businesses.

• Lower eligibility requirements: The biggest advantage of a business line of credit for new business is that you don’t have to meet significant annual revenue or time in business qualification requirements that you would with a bank loan. This makes it a great business loan for new businesses with no credit or bad credit.
• No monthly payments: When you use your line of credit, you’ll have to pay back the money, plus interest. However, if your business earns enough income to cover expenses, you won’t have to pay anything back. The money is just there when you need it.
• No collateral: Unlike other financing options, an unsecured business line of credit for new business does not require collateral or a personal guarantee. While a secured line of credit may make you eligible for lower interest rates, it’s not required, making a business line of credit less risky than loans. Likewise, there are no prepayment penalties, origination fees, or other strict loan terms.
• Fast funding: Many business lines of credit can be approved within a few days, making them far faster funding options than many loan products.
• Flexibility: A line of credit loan for small businesses is much more flexible than a traditional loan, allowing you to pay for a wide range of business expenses and pay the money back with less stringent requirements.
• Intro offers: The top business lines of credit feature compelling offers for new businesses, like 0% financing for the first few months or no annual fee. You won’t find those special offers on loans.
• Build credit: Any debt that is reported to the major credit bureaus will impact your credit report, but lines of credit are especially valuable as business loans for new businesses with no credit. Since they tend to have low qualification requirements and offer such flexible access, you can build your creditworthiness as you grow your business.
• Build rapport: Many new businesses can’t get approved for a term loan. However, small business line of credit lenders and traditional lenders are often one in the same, so building a good history with an LOC lender may set you up for larger traditional loans in the future.

Conclusion

A business line of credit for new businesses may be the best funding option available. Getting approved for a business line of credit is simple, whether you’re going through a traditional financial institution or an online lender. The loan application process with most small business line of credit lenders is fast and easy to do online. In many cases, you can get approved the same day.

With that funding, your new business will have access to cash flow and working capital to support all of your business needs. New business owners don’t always know how much capital they’ll need, but a business line of credit for new business offers flexible, immediately available capital without the strict repayment terms of a traditional loan.

FAQs

What is a business line of credit?

A business line of credit for new business is part traditional loan, part credit card. When approved, a borrower will have access to a maximum credit limit, but they’ll only pay interest on the amount they use. When they pay back the credit, plus interest, they’ll have access to the full revolving credit limit. There are no monthly fees and the FICO score requirement is much lower than traditional term loans or SBA loans.

What can you use a business line of credit for?

A business line of credit for new business is a cash equivalent, so it can be used for practically any business purpose. You can use the capital to pay employees or rent, purchase inventory, finance marketing initiatives, and much more.

Why is a business line of credit for new business a good thing?

New businesses don’t always understand their operating expenses right away. As such, a business line of credit offers instant access to capital when you need it, without the burden of term loan debt. You only pay interest when you use the line of credit, giving you the flexibility of paying expenses you can’t cover with your regular revenue without locking you into monthly payments.

How do you get a business line of credit?

Getting a business line of credit is similar to any other type of business financing. Before you shop for lenders, you should determine how much funding you need and what interest rates you can afford to pay. Then, shop lenders and prequalify to see what interest rates and terms you may be able to get. When you’re ready, most lenders allow you to apply online.

What are the eligibility requirements for a business line of credit?

The top business lines of credit for new businesses have relatively low qualification requirements. Typically, you’ll need a lower minimum personal credit score and annual revenue than with other loans. Some small business line of credit lenders may have even less strict requirements.

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