How to Get Business Lines of Credit – What It Is and How It Works

Does your business need some extra funds but you don’t want to deal with those rigid regular business loans? Thats where business lines of credit comes in. A business line of credit is a flexible small-business loan that allows your to draw and refund funds whenever you need them.

What is a business line of credit?

A business line of a credit is a revolving amount of money that can be loaned to small businesses. In other words, a business line of credit is a from of debt finance, allowing borrowers to pay back the funds over a period of time. Initially, the loan begins with a credit amount, a pre-approved amount of money that you can borrow. As a borrower, you have the option to only withdrawal the amount money you need at a given time, and only pay interest on that amount, not the entire credit amount. Consequently, business lines of credits or small business loans, or “yrityslaina” in Finnish, are some of the most flexible and cheapest small-business loans available in Finland and elsewhere.

Types of business lines of credit

There are two types of business lines of credits worth noting. Firstly there is the secured business line of credit. This loan requires businesses to offer assets as collateral. Then, if you borrower is unable to pay back the line of credit, the bank will acquire ownership of that asset. The second type of loan is the unsecured business line of credit. Unlike a secured business line of credit, this one does not require a business to offer assets as collateral. In general, this type of loan is only offered to businesses with a strong credit profile. Also, an unsecured business line of credit will often have higher interest loans than its counterpart.

Applying for a business line of credit

There are a few things you need before you can go to the bank and apply for a business line of credit. For starters, you need to prepare some business documents. This includes your signed business year end financial statements, trade name registration certificate, investment/deposit statements, and you bill of sales (if you plan to use the loan to buy business assets). You will also need some personal information, including two forms of government issued identification, your name and address, and a statement of business activities. Once you have collected all the required documents, you are ready to apply for a business line of credit.

The next step is to find a bank that offers a business line of credit. Visit some of your local banks and ask them about what type of business loans they offer. Once you found one, contact them about applying for a business line of credit. Some banks may even offer an online loan application which you can fill out from your computer.

Summary

With all that being said, if you are a small business looking for a flexible loan, a business line of credit is a great solution. It is important to recognize the pros and cons of such loan, and decide if its right for your business. One thing to note is business lines of credits are typically offered by big banks. Also, be sure to prepare your documents ahead of time to ensure a smooth application process.