If you own a business in New Jersey, then you know full well how difficult it is to secure a fast business loan. This is why a business line of credit is an excellent and convenient source of funds for business owners. A business line of credit can cover the costs of emergency expenses, add to your reserve of working capital, and allow you to seize growth opportunities for your business.
Like other types of loans, applying for a business line of credit will come at a cost. It’s very important to assess the needs of your business and your current financial situation before applying for credit. That said, when shopping for a business line of credit, here are four factors you need to consider:
Interest Rates
For a majority of borrowers, interest rates are the most important consideration they face when shopping for a loan. The interest begins to accumulate when you withdraw funds from your credit account. This is why you need to pay attention to the APR offered by potential lenders. The rates may vary depending on the lender, so be sure to take the time to compare rates and weigh your options carefully. Get the best financing options available from SMB Compass.
Loan Terms
How often does your lender require a payment? Knowing this is important. That’s why you need to fully understand the terms of your loan prior to signing on the dotted line. Some financial institutions require a pay-down provision (also called a clean-up requirement) where a business owner has to pay the balance within a short period of time, usually in regular monthly payments. Not every lender has this requirement, so if you think this feature is important to you, be sure to raise your concern about this early on.
Fees
When shopping for a business line of credit – or any type of loan – don’t forget to read the fine print on fees. There are lenders who charge an annual fee to keep your account open – even if you don’t use the funds. Others may deduct a transaction fee whenever you borrow from or repay your line of credit. You should also be notified if there are any opening or closing fees when setting up or closing your credit line. It’s important to be aware of these finer points before concluding your loan agreement.
Amount of Funds
You should also consider the amount you plan to borrow from your line of credit. There are times when your business may benefit more from a different loan vehicle, such as a cash advance, a term loan, or a business credit card. For example, if you need to borrow a large sum of money and you don’t intend to pay it back quickly, a small business loan may be the better option.
Secured vs. Unsecured Lines of Credit
Before you apply for a business line of credit, you need to determine whether you want a secured or unsecured line of credit.
For secured lines of credit, you need to have assets you can put up as collateral, such as equipment, real estate, or inventory, among others. Lenders can seize these assets if you default on the loan.
On the other hand, startup companies may not have enough assets or they may not be willing to risk having their assets seized. But because of the lower risk on lenders’ part, secured lines of credit are easier to qualify for.
As the name suggests, you don’t need collateral to qualify. However, this makes it tougher to qualify for business loans. The lender will check your business’ annual revenue, as well as your personal and business credit.
If you don’t know your credit scores, you can review them on certain websites. For businesses, you can check them through Experian, Equifax, and Dun & Bradstreet. You can run personal credit scores on Experian, TransUnion, and Equifax.
Qualifying for a Business Line of Credit
To qualify for business lines of credit from traditional lenders (banks), you need to have strong revenue and a few years of history. For larger lines of credit, lenders may ask for collateral, which they can repossess if you default on the loan.
You need the following documentation to apply for business lines of credit from banks:
- Bank account information
- Personal and business tax returns
- Business financial statements (profit-and-loss statements and a balance sheet)
Alternative online lenders are more lenient towards borrowers. They have looser qualifications compared to banks, but they are likely to charge higher rates and may have lower credit limits.
Know More About Business Lines of Credit, New Jersey
When choosing the right loan for your business, take the time to assess the amount of money your business needs. If you want to discover how a business line of credit can be the ideal solution for you and your business, you can talk to lending experts. They can help you know the ins and outs of business lines of credit and they can also answer any questions you have in mind regarding financing.