Using a business line of credit can be a convenient and affordable financing option for many small businesses seeking cash to manage their operation.
They work similarly to a credit card by offering a revolving line of credit that your business can utilize whenever needed – except often with higher limits and lower interest rates.
But choosing the best business line of credit for your business can be challenging and burdensome. Here’s how to find the best business line of credit.
Business lines of credit are some of the most flexible financing options available to most small businesses, but some are better than others.
With a line of credit, you can use your funds for anything ranging from purchasing inventory to acquiring new equipment or having some additional funds to meet payroll.
Lines of credit work very similarly to credit cards, with a maximum dollar amount you can draw from.
The potential dollar amount that your lender can offer for your line of credit is paramount to finding the best option.
Because this number is the maximum you can borrow at any time, it’s vital to have an amount that suits your needs.
For example, if you need to purchase inventory that costs $200,000, but your line of credit is capped at $150,000 – you’ll need to find a new lender to meet your needs.
While some lenders will gatekeep this amount, some lenders make it easier to access.
Ultimately, the dollar amount of your line of credit will vary depending on your business credit, history, and tertiary factors beyond your control.
When choosing the best business line of credit for your enterprise, shopping interest rates is always the right course of action.
In general, when using any line of credit, there is a large spread in interest rate offerings between lenders.
The best options will feature lower rates without subsequently increasing fees and penalties.
As a general rule of thumb, business lines of credit have interest rates slightly less than most business credit cards and slightly more than a longer-term business loan.
By using a broker like Llama Loan, you can get access to multiple lenders so you can easily compare rates and find the best option for you.
The draw period for your line of credit should be considered when choosing which lender is best for you.
In most cases, draw periods will range from 12 weeks to over five years. Once you reach the end of your draw period, you can opt for a renewal – which may come with additional fees, which is why a longer draw period can be more attractive.
Additionally, a longer draw period will reduce the friction that comes with more frequent renewals regarding credit checks, providing business documentation, and gathering tax returns.
Fees and penalties are standard practice for business lines of credit, but finding a lender that minimizes your costs can prove to be extremely beneficial in the long term.
Between origination fees, account maintenance fees, draw fees, and others – the cost of borrowing money can become exorbitant when opting for a poor lender.
Always examine the fees that come with your line of credit before making your decision.
Business lines of credit can be either secured or unsecured, depending on your situation. This choice will have a profound impact on the overall cost of your financing.
Secured lines of credit allow financiers to use your assets as collateral, and in the case of defaulting on your debt, your assets can be ceased by the lender. In return, you’ll benefit from lower interest rates and higher limits.
Unsecured lines of credit do not require any assets for collateral but, in turn, come with higher interest rates and lower limits.
In some cases, if choosing a secured line of credit, you may be required to complete an appraisal of your assets to affirm their value.
Llama Loan can help you find the best business line of credit for your operation by giving you access to multiple lenders that have your best interests in mind.
You can quickly compare rates, uncover potential fees, and find the best lender for your business.
If you need faster funding for your business, using a broker like Llama Loan can help reduce the friction and expedite the process.
Businesses come in all shapes and sizes, just like lines of credit. The best business line of credit is one that fits your business’s needs and goals. Whether you’re looking for the most economical rates or you require higher limits, Llama Loan can help you find exactly what you’re looking for. Get in touch today to get started!