Business Lines of Credit
Commercial & Small Business
For entrepreneurs and small business owners everywhere, having access to financing when you need it is invaluable. However, traditional small business loans like those in the Small Business Administration loan program don’t offer the flexibility today’s companies require. That’s where a revolving credit line can make all the difference.
A business line of credit provides on-demand access to capital up to a set limit and allows you to draw funds as needed for most business purposes. Its convenience and versatility help businesses cover expenses, manage cash flow, and capitalize on opportunities at key moments.
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Business Lines of Credit Offer Flexible Financing
A business line of credit provides reusable access to capital within predefined limits set by the lender. Here’s a quick overview of how they work:
- You apply and are approved for a maximum credit limit based on your qualifications
- Funds can be withdrawn as needed up to the approved limit
- Interest accrues at a variable rate on outstanding balances
- You make monthly interest-only payments on borrowed amounts
- As you repay drawn funds, that credit becomes available to access again
- The line remains open as long as you make on-time monthly payments
This revolving access and flexibility distinguish a business line of credit from a traditional term loan, which provides a single lump sum. With a business line of credit, you only tap the capital you require when needed.
For many companies, this on-demand financing helps bridge gaps in cash flow, fund growth initiatives, and manage business expenses across business cycles. Having accessible working capital and financial wiggle room enables companies to operate optimally.
Business Credit Lines Offer Advantages Over Loans
So how exactly does a business line of credit differ from standard loans for small businesses? And what makes a business line of credit a better option in many cases?
Key advantages of a business line of credit include:
- You only pay interest on what you borrow – Avoid incurring unnecessary interest expenses when you don’t need the funds. With a loan, interest accrues on the total sum expended.
- Flexibility to use funds for any business purpose—There are no restrictions on how you can deploy capital from your business line of credit.
- Ability to access funds as needed—Rather than a one-time payout, funds can be accessed at key moments to accommodate changing needs.
- Credit line remains open over time – As long as you make monthly payments, the revolving credit allows ongoing access to capital.
- Easy online account management – Convenient tools to monitor balances and transactions 24/7.
- Lower rates than credit cards – Credit lines provide affordable financing compared to high-rate cards.
Ultimately, the on-demand flexibility of a revolving credit line enables more strategic capital management. Businesses only take on debt and interest costs when funds are truly needed.
What Can You Use a Business Line of Credit For?
A significant plus is that funds drawn from a business line of credit can generally be used for virtually any business purpose, including:
- Smoothing cash flow gaps and covering operating expenses
- Increasing inventory and stocking up on supplies
- Expanding marketing and advertising campaigns
- Hiring additional temporary or permanent staff
- Upgrading equipment, systems, and facilities
- Purchasing supplies and materials for contracts
- Capitalizing on opportunities for growth and expansion
- Consolidating higher-interest debt
- And more! Business credit line funds are flexible
A business line of credit is a versatile financing tool for managing your company’s changing requirements. It allows you to access capital for whatever pressing needs arise in your enterprise or small business. You deploy the funds where they can provide the most benefit at any given time.
Some specific examples of using a business line of credit include:
- Paying employees and covering payroll during seasonal dips
- Bridging the gap between paying suppliers and collecting receivables
- Securing short-term warehouse space for a large incoming inventory order
- Adding staff temporarily to fulfill a special one-time order
- Taking advantage of a new marketing opportunity at a critical moment
- Covering emergency repairs or replacements of equipment/facilities
- Expanding your product line ahead of a trade show
- Purchasing extra materials to fulfill a big contract
- Keeping the lights on and bills paid during slow periods
- Avoiding the high-interest rates and fees charged by many business credit cards
The flexibility to direct funds to pressing needs allows entrepreneurs to strategically time investments for when they will be most impactful. Having readily available capital provides peace of mind.
How To Get Approved for a Business Line of Credit
“Can you get a line of credit for your business?” The short answer is yes, as long as you meet eligibility requirements and demonstrate your ability to handle the account responsibly.
For a secured line, collateral like accounts receivable, equipment, or other business assets is pledged to allow for a higher credit limit.
While requirements vary, having solid business fundamentals and personal credit will place your application in the best position for approval for a line of credit. Be ready to provide documents that exhibit your company’s financial health.
Helpful tips for getting a business line of credit application approved include:
- Gathering required documents and financial records in advance
- Maintaining diligent bookkeeping and account management
- Building personal credit history through responsible usage
- Paying down existing debts to lower your credit utilization ratio
- Only applying for what your business reasonably needs based on finances
- Being prepared to explain how the line will be used if asked
Getting approved becomes a smooth and straightforward process with proper preparation and organization.
What Interest Rates and Fees Apply?
Two primary costs associated with a business line of credit are interest on outstanding balances and account fees:
Interest Rates
- The interest rate is variable, meaning it fluctuates over time
Loan/Account Fees
- Annual fee – Annual fee related to approval and renewal of the line of credit.
- Transaction fees – Some lenders charge for transfers, wires, etc.
By only paying interest on borrowed amounts, you optimize capital efficiency. Rates are generally quite competitive, so be sure to compare options.
Ways to secure the best rates and minimize costs include:
- Maintaining excellent business and personal credit
- Applying with an established, reputable lender
- Opting for an unsecured line if qualifications permit
- Setting up automatic payments to earn rate discounts
- Taking advantage of lower introductory interest periods
- Avoiding excessive transactions/activity on the account
A business line of credit can be an affordable financing strategy with proper account management.
Commercial & Small Business Lines of Credit FAQs
Which Lender Offers the Best Business Line of Credit?
You’ll find many lenders and financing options from traditional banks, credit unions, online lenders, and more when shopping around. Key factors to compare when you compare multiple lenders include:
- Interest rate
- Maintenance fees
- Qualification requirements
- Business loan limits
- Repayment period
- Account management features
- Customer service quality
Focus on finding an experienced lender that offers competitive rates, flexible terms, and robust account tools. Take time to compare lenders and evaluate offerings from multiple providers thoroughly.
Tips for choosing the right lender:
- Ask for recommendations from other business owners
- Read reviews online to identify top-rated fintech lenders
- See if the bank where you keep your business bank account offers lines of credit for existing customers
- Understand the advantages and disadvantages of a bank vs an online lender
- Pay attention to consumer complaint histories when researching providers
- Look for minimal maintenance fees, strong digital account tools, and responsive customer service
Finding the right partner that supports your financing needs today and in the future saves time, money, and headaches.
Is a Business Line of Credit Right for Your Company?
For many firms, the answer is absolutely yes. A credit line’s on-demand flexibility enables better cash flow management and access to capital for strategic investments.
Before committing, answer a few key questions:
- Do you have financing needs that fluctuate?
- Does your revenue vary seasonally or cyclically?
- Do growth opportunities arise unexpectedly at times?
- Would access to working capital aid your company?
If you answered yes, a revolving credit line may provide the strategic financing edge your company needs to thrive.
Assessing if a business line of credit aligns with your needs:
- Consider the timing and variability of your capital requirements
- Review your current and projected cash flow and financing picture
- Determine if fluctuating access to funds would help optimize operations
- Estimate your average and peak borrowing requirements
- Gauge if your business fundamentals could qualify for a sufficient line amount
- Weigh the advantages and costs against alternative financing options
For many businesses, having a reserve of accessible capital provides financial security in uncertain times and empowers seizing opportunities at critical junctures.
Sunwest Bank Offers Simple, Affordable Business Lines
For over 50 years, Sunwest Bank has delivered tailored solutions to help small and mid-size enterprises across the West Coast and Florida reach their goals.
Our business line of credit provides:
Low Costs
Competitive interest rates and minimal annual fees
Flexible Terms
No early termination penalties or prepayment limits
Strong Service
Dedicated bankers help identify the optimal credit line for your needs
Let us customize a business line of credit that empowers your company with financial flexibility and control. Contact us to learn more, or apply today!