Business Line of Credit

Whether you're starting a new business, growing your current operations or expanding to new markets, access to capital is essential. Without sufficient cash flow or reserves, your company could struggle after a few low-revenue months caused by seasonal shifts in demand, turbulent supply chains and variable expenses. Delayed access to credit can also cut short your ability to keep pace with growth and seize new opportunities.

How a Business Line of Credit Works

A business line of credit operates similarly to a business credit card. You are approved for a predetermined line of credit depending on your financial assets, cashflow and business history. For example, you might be eligible for a $250,000 line of credit. If you need to borrow against that line of credit to buy new equipment, pay employees or pay rent, you make regular repayments based on the amount you borrow and the interest on the amount borrowed until repayment is complete.

Business lines of credit require more proactive qualification steps than business credit cards, but they often provide lower interest rates and access to larger credit amounts.

Ideally, every business should have multiple financial options at their disposal. Common financial options include equipment loans, a business credit card or a line of credit. When you understand the differences between these sources of capital, you will make more informed decisions about when and how to use the capital at your disposal.

Business line of credit vs. a business credit card: Both require approval for a set amount of credit to be used at your discretion. Business lines of credit generally offer lower interest rates and larger amounts of credit. Credit cards require a minimum payment that includes both principal and interest once the credit is used. Business lines of credit require interest only payments once credit is accessed. Principal payments are at the discretion of the business and required in full at the maturity of the loan. Business lines of credit are typically collateralized. Credit cards are unsecured lines of credit. Heritage Bankers often recommend lines of credit for larger on-going expenses.
Business line of credit vs. a business loan: Both require approval for a set amount. A business loan is typically for a specific purchase and is fully funded at the close of the loan. They are usually collateralized, meaning the loan is secured by an asset like accounts receivable, equipment or property. Payments are a set amount of principal and interest over the life of the loan. A business line of credit is a set amount that can be drawn as needed or left undrawn. Business lines are typically collateralized, however the amount accessed on the line determines the payment. Nothing is due until the borrower draws on the loan. Once the borrower draws on the loan, the interest on the amount drawn is due until the borrowed amount is repaid. Principal payments may be made during the life of the loan to free up the amount on the line available to be borrowed in the future. The full principal amount is due at maturity.

A business line of credit offers small businesspeople peace of mind and the flexibility to respond to future liabilities or promising but capital-intensive business opportunities.

Contact a Heritage Banker to apply today

How To Apply for a Business Line of Credit

Different lending institutions have different requirements and qualifications for business lines of credit. Some typical considerations include:

Operating history (minimum number of years of operation and minimum annual revenue)
Leverage (the level of debt vs. total equity)
Ability to provide collateral for a secured business line of credit

To apply for a business line of credit, be prepared to provide a business plan outlining your strategy for stabilizing or growing net profits, a personal financial statement, business and personal tax returns verifying your revenue and proof of business registration. If the business is a “start-up” provide a business plan outlining your growth or stability strategy. Lenders can then use these documents to evaluate the riskiness of providing you with a line of credit. They will consider your history of performance, capacity to repay compared to other operational costs, the percentage of revenue that will go toward repaying the loan and available collateral to secure the loan.

Contact a Heritage Banker to understand your options

Get the Financial Support Your Business Needs With Heritage Bank

At Heritage Bank, we simplify finding financial resources for your small to medium-sized business. Our business line of credit helps small businesses thrive. Contact us today to learn more about our business line of credit options.