Benefits of a Business Line of Credit
You may wonder why it’s worth the effort to go through the application process for a line of credit when a credit card offers similar borrowing options. However, credit cards can hit you with fees and penalties subject to change with little warning. Interest on a line of credit is often lower, and making regular payments also builds up your credit rating.
When compared to some of the best business loan providers, the monthly payments on a credit line tend to be smaller, and you don’t have to worry about the money “running out” when you need it most. Instead, you have a set credit limit to draw from for the duration of the loan term. As long as you’re diligent about paying off what you borrow, you won’t be saddled with the specter of long-term debt.
Choosing the Best Line of Credit Provider: Factors to Consider
Traditional brick and mortar banks are one source of funding for businesses, however, they may not always be a viable option for every business. Online lenders provide a simplified path to receiving a line of credit and often are willing to give funds to those who may not be approved by banks. In addition, online lenders often provide funds much quicker than traditional banks. When choosing a lender, or lending platform, to provide you with a business line of credit, there are several key factors to consider.
1. Reputation
While traditional banks come with a reputation built in, you may not be as familiar with the leading online lenders. However, this does not mean that such lenders don’t have reputations as solid as banks do—you simply have to do some research or check with the experts to make sure they have a track record of providing reliable service. Look for an A+ rating with the Better Business Bureau to ensure that the lender is worthy of your business.
2. Minimum Credit Requirements
Various lenders are willing to take on differing levels of risk. You can save yourself a lot of time if you know ahead of time what a lender’s minimum credit requirements are. Online lenders are generally much more forgiving than banks in this regard, and are prepared to look at a number of factors other than credit score to determine your worthiness for a business line of credit. However, lenders will clearly state what their minimum requirements are, so if you don’t meet these, you’ll know to look for another provider with more lenient approval standards.
3. Funding Amount Limits
Those seeking a business line of credit may not have a specific purchase they are funding with a set dollar amount, however they are still likely to have some idea of how much funding they need. Lenders generally have a minimum and maximum line of credit that they will give a business. If you are seeking more than $500,000, then a business line of credit is not the loan option for you. However, the leading online lenders will provide at least $100,000, with some of them extending far beyond this amount.
4. Funding Speed
The speed with which borrowers gain access to their funds is one of the main advantages that online lenders offer over banks. The approval process is often a matter of days and borrowers can start drawing off of their lines of credit in weeks, if not days.
5. APR and Fees
If you are a business owner, a line of credit is a product you purchase to serve your operation. Just as you would seek the product that gives you what you need for your business at the lowest possible price, you will want to choose the line of credit with the lowest APR. The business loan APR, or annual percentage rate, takes into account how much the line of credit will cost you annually, including interest rate and any fees.