What Exactly is a Small Business Line of Credit?

A small business line of credit is a flexible funding tool that allows access to a predetermined amount of working capital. Essentially, you can borrow money when you need it and have the line of credit waiting for you to use when you don’t need it. This type of revolving credit is a great option for small businesses to overcome gaps in cash flow and help grow their company.

Your businesses will go through an approval process to discover how much working capital is available to finance. After that, you can draw out funds as needed with quick and easy access. This option allows you the convenience of accessing capital as you need it, paying back what you use, and borrowing again. This is similar to a credit card.

How does a small business line of credit compare to other types of financing?

Business loans and lines of credit work very differently, however, they both allow access to money that can help offset businesses expenses.

A traditional small business loan has a non-revolving credit limit, which means the business can only access the loan amount once, and it can’t be used again after it’s paid off.

A line of credit, on the other hand, is a more flexible small business financing option. It allows you to draw on funds up to the maximum credit amount approved while making regular payments to pay off what you’ve drawn. Unlike traditional loans, the business has continuous and repeated access to these funds.

A business line of credit can be used for a variety of short-term needs, such as managing payroll or covering unexpected costs, while traditional business loans are better for those who need higher capital and longer repayment terms.

A merchant cash advance, which is not a loan, gives businesses access to funds fast in exchange for a percentage of their future credit/debit card receivables. This option gets you money quickly, but is not revolving like a line of credit and requires that your business accepts credit card payments or has other receivables.

Here Are 5 Ways a Small Business Line of Credit Can Help Grow Your Business

1. Hire Great Talent & Invest in the Staff You Have

One of the greatest assets for any small business is its staff, which makes investing in your employees and staffing a huge consideration and expense. A line of credit can open up new opportunities to expand your company, meet demands, and invest in employee development.

Investing in your staff not only helps produce more value for your business, but it can also increase engagement, performance, and loyalty when your staff feels appreciated.

You can use this financial boost to bring on new staff when needed but also consider building up your current staff with employee perks, training, mentorship, incentive programs, better tech, and more.

2.  Explore New Marketing Tactics

Another way to use these funds is to strengthen marketing efforts. Many small businesses run without elaborate marketing strategies due to low cash flow. A line of credit gives you the flexibility to develop a marketing plan to help attract new customers and drive sales.

You could apply these efforts in many ways including email marketing, ad campaigns, optimizing your website with SEO, or even boosting your social profile with videos and engaging content.

Explore if a rebrand could be right for you or consider hiring an outside agency to help give your brand a facelift. The opportunities are endless.

3.  Optimize Your Business Technology

Investing in technology is a great way to ensure future success for your business. A line of credits offers easy access to cash that can be used for equipment updates and other smaller equipment purchases, such as updating your Customer Relation Management (CRM) software or Point of Sale (POS) systems.

Updating old software to keep up with evolving technology is also a smart way to invest in the longevity of your business. Having outdated software, computers, and other digital tools can hold you back. Make sure your business is efficient and secure with a reliable network, security monitoring, and high-quality tech.

4.  Pursue a Great Opportunity

Great opportunities are hard to come by and almost impossible to predict. With an influx of cash from a line of credit, you can take advantage of these new business ventures without feeling strapped with your finances.

Consider joining a mastermind where you can join forces with like-minded entrepreneurs to discuss businesses opportunities. These programs are helpful to grow your network and gain instant high-value feedback, but they also come at a high price. This is why using working capital from a line of credit is a valuable investment to grow your business.

Forming a new partnership is a great way to break into new markets and having a flexible line of credit on hand can help cover associated costs, such as legal fees and co-marketing expenses.

Or even implement an exciting new sales idea with the help of a consultant. If the same approach you always use is getting tired, hiring a sales consultant or career development coach can bring fresh insights and strategies to your business.

5.  Equip Your Business for Greatness

Tap into the extra cash from your line of credit to help optimize your business. Investing in the growth of your business now can only increase your profit in the long term.

Stocking up on inventory is a great way to set your business up for success. Identifying your busy season and when you will have an influx of sales, based on sales history, will help to stay on top of consumer demand. This can help eliminate a loss of sales due to low inventory.

Don’t wait until your equipment has failed to replace it. Invest in updates and repairs before they become a necessity. This can include office furniture, kitchen appliances, warehouse infrastructure, and design upgrades. There will always be new equipment needed to succeed.

More Ways Business Owners Can Take Advantage of Flexible Financing with a Small Business Line of Credit

  • Cover seasonal downturns – use funds strategically to cover overhead expenses during your slow season. This ensures you don’t miss a beat when sales pick back up.
  • Supplement cash flow – when times are tight, a business line of credit can help you meet short-term payroll needs.
  • Build a safety net – you can never foresee when you’ll need cash fast. Whether you have equipment failure, software issues, or infrastructure damage, having a cushion of money available to lessen the blow will always be a good thing.
  • Support ongoing operating expenses – every business has day-to-day expenses that can add up. Use a line of credit to help supplement funds when operating costs get too overwhelming to handle.

How to Qualify for a Small Business Line of Credit

There are several requirements your business will need to meet to qualify for a line of credit.

In general, these requirements will be associated with your business’ credit score, credit history, revenue, and time in business. These factors help to determine if your business qualifies, but also how much funding it can qualify for, as well as the duration and length of repayment terms.

Basic information you need to qualify includes:

  • A valid form of ID
  • A business bank account
  • Bank statements
  • Business license or permits
  • Credit Report

How to Apply for a Line of Credit

You can secure a business line of credit through a bank, credit union, or online financial providers – like Rapid Finance.

Be sure to research and consult with multiple institutions to compare terms and determine the best option for your business.

Applying for a small business line of credit at Rapid Finance couldn’t be easier:

  1. Apply online Apply online from anywhere. Tell us a little about your company and your business goals. Don’t forget to have all your necessary documents on hand.
  2. Let Us Review – Our team will review all the information you provided. One of our dedicated business advisors will reach out if any additional information is needed.
  3. Get Funded – If approved, your business will be able to draw on the line of credit for all its business needs.
  4. Obtain Additional Funds – Because business lines of credit are revolving, you can come back and draw out of your line of credit up to the approved amount at any time.

Summary

A small business line of credit allows flexible financing to businesses on a revolving basis. A line of credit is a great solution for small businesses looking to grow their business with short-term funding that will help result in long-term success and growth.

Ways to utilize this type of small business financing are by supplementing cash flow, investing in new and current employees, exploring new marketing and technology ventures, or pursuing new business opportunities.

If you’re looking for flexibility with your financing options and want the ability to access capital on an as-needed basis, a business line of credit is could be a great option for you and your business.