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Running a business without a reliable cash flow is a recipe for disaster and failure. Getting funding through a business line of credit has become a common phenomenon, but not all entrepreneurs understand what it entails. If you fall under that category, then read on to get a clear image of what this is about.

What is a Line of Credit?

A business LOC is a funding option that allows you to tap into a fixed amount and get just the money you need to cater to a short-term financial need in your enterprise. The best part about this type of funding is paying the interest for only what you spend. For instance, if you take out $100 from a line of credit with a fixed amount of $5000, the lender will charge you interest for the $100 only.

Lines of credit are revolving forms of funding, meaning you can tap into your LOC again and again as long as you first pay back what you owe the lender. Finally, you get a higher borrowing amount because lenders know that financial expenses for businesses are higher than households.

The Loan Cost

The mistake you can make is to think that the only cost you incur on a line of credit is the loan interest. On the contrary, there are other charges you may incur from some banks and alternative lenders that constitute the total loan cost. Such fees include;

Origination fee – the cost of setting up a loan
Administration charges
Annual fees
Pre-payment charges

Note that these charges are not levied by all lenders.

The Application Process

Applying for a business LOC is not a daunting process as such. However, potential lenders may require you to have:

A 500+ credit score
Profit-and-loss statement
Tax returns
Revenue history
A balance sheet
Bank account information

Additionally, your business must have been operational for at least six months with at least $25,000 in annual revenue.

Acquiring a line of credit for your enterprise is a wise step, considering that you may sometimes be in urgent need of financing. Feel free to contact Ideal Financial Group to get more information and the necessary help on this subject.