What is a Line of Credit?
A line of credit is an arrangement that is used by businesses to finance their day-to-day operations. The business can borrow a certain amount depending on its personal credit score at a certain rate of interest. A line of credit refers to a limit of borrowing that can be used by the business at any time. The business can use the line of credit only until it exhausts the credit limit. In order to borrow again, the business has to first repay the previous amount. The line of credit borrowed can be used for business as well as personal finance needs. It is flexible in nature and allows the borrower to pay interest only on the amount borrowed and repay the entire line of credit at once or make monthly repayments.
Types of lines of credit
Personal line of credit: Personal line of credit refers to unsecured credit that can be borrowed by individuals for emergencies, weddings, and other purposes. You need to have a credit score of more than 670 or higher and a reliable source of income to be able to borrow a personal line of credit.
Business line of credit: A business line of credit is a type of short-term finance that can be availed by businesses to fund their operations and cash flow needs. It is decided on the basis of the annual revenue of the business, credit score, and credit history of the business. This type of credit can be taken as and when needed.
Requirements to Qualify
It’s not easy to get an instant business line of credit instant approval. There are some basic requirements for availing the instant business line of credit which you need to have.
Personal Credit Score: Personal credit score refers to the ability of a person to pay back the loan amount borrowed. You can qualify for a business loan if your credit score is 500+ but it is better to have a 600+ score as it will help you get better loan terms and lower rates of interest.
Annual revenue of the Business: The annual revenue of the business is taken into consideration to determine its ability to repay the credit and the amount of credit that can be extended. The minimum annual revenue for a business needs to be in the range of $25,000 to $1,00,000. If you are availing of the loan from a bank, you might have to show an even higher annual revenue.
Age of the Business: If you are a business looking to avail yourself of a line of credit, you should have been in business for a minimum of 6 months. In order to get better terms and interest rates on loans, the ideal time on business should be 1-2 years.
Collateral required: Collateral is the security that a lender takes from the borrower in the form of physical assets or a personal guarantee to secure the credit. This collateral can be sold by the lender in case the borrower fails to repay the loan amount.
Debt Schedule: The lenders consider the borrower’s existing debt schedule to find out if he already has an ongoing debt. If you already have a lot of debt, the lender might decide that it’s not safe to lend you a line of credit.
Getting a line of credit can be troublesome whether it’s for business or for your personal use, however, making sure that you fulfill the minimum requirements can help you get an instant business line of credit online.
