Business Lines of Credit

Small Business Lines of Credit

What happens when your business has an emergency and lacks the cash on hand to fix the problem? Ever miss out on a great opportunity with an astronomical return on investment? Every small business owner desires the ability to access needed capital without having to wait. Our Small Business Line of Credit Process makes this desire a reality. With a Crestmont Capital’s small business line of credit, you can have access to funds instantaneously and never lose out to a larger competitor again!

The process is simple! When an unexpected bill, purchase, or growth opportunity arises, simply access your Crestmont Capital line of credit account and receive funds in hours. No hassle, waiting or lengthy application! You control the funds because you know what is best for your business.

Advantages of a Small Business Line of Credit

  • Immediate Access to Funds With No Waiting or Application
  • Completely Unsecured with NO Collateral Needed
  • Only Pay on Your Outstanding Balance and Not Your Loan Amount
  • Regular Limit Increases Available Without Further Documentation Being Needed
  • Every Payment being 100% Tax Deductible

Uses of a Small Business Line of Credit

  • Purchase Inventory
  • Payoff High Interest Credit Cards or Cash Advance Loans
  • Renovation and/or Expansion
  • Payroll
  • Unexpected Emergencies

What exactly is a business line of credit?

A business line of credit is a revolving line of credit that one can draw against on an as-needed basis. It's usually used for short-term working capital to help improve cash flow or to finance the costs of surprise expenses. A small business line of credit is revolving, and this is the major distinguishing characteristic. Also, subsequent draw(s) taken after the initial funding are only restricted by the approval amount and not a pay-down requirement. In other words, the small business can access the line of credit as long as the small business has not hit its high credit limit. As we mentioned before, one of its main attractions is its flexibility.  

How does a small business line of credit work?

A small business line of credit is very much like a credit card in the way funds are accessed, but the way it is paid back usually differs from that of a credit card. There is also a significant difference in the way interest is calculated. The merchant is approved for a specified high credit limit. The limit is not a lifetime one, as is the case with certain term loans, but rather the highest dollar amount a merchant can borrow at one time. Another way of looking at the high credit limit is the highest level and balance it can reach. Unlike a term loan (where a specific amount is paid back over a defined term), a line of credit allows the small business owner only to borrow the amount needed at any given time. This type of funding helps mitigate the ups and downs of cash flow, especially while waiting to collect on receivables.

Are there different types of lines of credit for small businesses?

Just like most products in our economy, there is more than one type of small business line of credit. Generally, these lines are categorized as either secured or unsecured. A secured line of credit is backed by collateral. This collateral could be inventory, equipment, real estate, or some other asset with a market value high enough to justify the credit limit. The other, a probably more popular type of line of credit, is an unsecured line of credit. This type of small business line does not require any assets of value to be pledged to establish the credit line. An unsecured line of credit is based on the cash flow and debt ratio of the small business, as well as the credit of the business owner or owners and the business credit of the entity itself.

When and why would a line of credit be a good option?

A line of credit is a great option, especially when a small business has multiple projects going on simultaneously but with different start and completion dates. For example, a construction company that needs to pay for supplies and payroll on multiple products can use a line of credit to help ease the strain on cash flow while awaiting payments for completed or near-completed projects. A line of credit also is a great idea for a business that has some seasonal highs and seasonal lows. It offers a high level of flexibility and businesses can draw on it on an as-needed basis. On the other hand, a line of credit might not be as good of an option for a small business that is working on a long term projected.

What are the requirements for a business line of credit?

  • Time in Business

The first requirement for a small business line of credit is the business’s age. The longer the time in business, the lower the risk grade and the great probability of being approved funding.

  • Revenue

The next requirement for a small business line of credit is revenue. For a business that is smaller in scale (less than $200,000 in gross annual revenue), the best options are probably micro-lines of credit. For a small business between $200,000 and $500,000 in gross annual revenue, a smaller revolving line is a possibility. For companies with greater than $500,000 in annual revenue, a flexible line of credit is obtainable if all other criteria or requirements are met. The bottom line: the greater the revenue, the greater the potential high-credit limit.

  • Financial standing concerning debt

The next consideration is the overall debt picture and the debt-to-revenue ratio of the small business. As it is in general business practices, it’s best not to have much outstanding debt. Underwriters will be more inclined to approve a small business for a line of credit if it has little to no debt, even if its gross annual revenue isn’t sky-high.

  • Profit and cash flow

Cash flow analysis examines the affordability of the line of credit for the business. Underwriters are most concerned with whether a small business can afford its payment. If the business can do so, underwriters will also want to know how much of the payment it can afford to pay, given their current levels of revenue and cash flow stability.

  • Industry and use of funds

The next consideration is the business’s industry and use of funds. A line of credit program requires that the industry not be restricted, as some of these programs place restrictions against funding for certain industries. An underwriter is also likely to consider if the use of funds is consistent with the industry and proposed use. Essentially, you have to be allocating and using the funds for expenses which are relevant to your industry.

  • Creditworthiness

Last but not least, creditworthiness is a crucial factor. Business credit is required for an application to be approved. Regardless of personal credit, a line of credit is more likely to be approved if a business has good credit. That being said, it’s always good to strive to have good personal credit. A company that is past due or in default on vendor debt is not likely to be approved, even if the owner has a stellar personal credit score. The overall creditworthiness of the business and ownership structure is highly regarded as an underwriting requirement for a small business line of credit.

The Bottom Line

Obtaining a small business line of credit is a potentially important aspect of financial health and growth for a small business. A line of credit is great for short term uses without affecting the leveraged position of a small business. Realistically, the requirements are not too different from the qualification for other business financial products. To put yourself in a good position to obtain a business line of credit:

  • Ensure your business has been around for at least a year
  • Brings in a decent amount of revenue
  • Shows a good profit, cash flow and strong credit

If you have put yourself in a solid position with these factors, you should be in good shape to acquire a business line of credit!

Are you ready to open a line of credit and cover some costs? You can fill out an application or contact us today!