How does business line of credit work?

Business line of credit works by providing the businesses with access to fast financing that can be used to address any business expenditures that arise. Line of credit is similar to a credit card, but it offers more flexibility and freedom. Use it when you need it, with interest kicking in once the funds are drawn. With credit cards, there is no flexible repayment schedule and restrict usage since majority of the contractors or vendors won’t accept credit cards as a form of payment. With a line of credit, you pay down the line and draw remaining balance in the future vs. credit cards. Credit cards limit you at a certain amount with a potential of hurting your personal credit score from an increase of utilization rate. You can pay off the line of credit at any time!

Why businesses need a line of credit? 

The business line of credit is an essential type of financing that every business should consider. By having this type of financing, you are setting yourself up to have sufficient cash when business surprises arise. Having access to fast financing is the number one reason why businesses are applying for it. The reason why so many businesses fail, is due to failure in covering operational expenses like payroll, rent, increasing inventory or short-term payables. You can access the funds almost instantly. Operate your business knowing that you have the required financing that you could tap into versus worrying about tomorrow. 

Lenders that offer a business line of credit, each have their own guidelines and requirements. The approval depends on the business that is applying and its credit factors. Line of credit can vary from 1 to 3 years and with some lenders the term could extend up to 5 years. The payback of the balance and interest also depends on each lender, some lenders would debit on monthly basis and others would debit on weekly or bi-weekly basis. Before applying, business owners need to have a good understanding if the line is secured or unsecured. A secured line of credit requires some sort of collateral while an unsecured line doesn’t. The funds are typically drawn from a business checking account with a seamless payment structure.   

Unsecured or secured line of credit, which one is more suitable? 

When speaking with business owners, an unsecured line of credit offers more flexibility when applying for capital. Business owners have a major concern with agreeing to collateral part of the secured transaction, making unsecured line of credit more favorable. If the borrower fails to pay its debt, the lender could seize the underlying asset. Lenders could provide funds for an unsecured line of credit up to $250,000 or even greater at some instances without any collateral. The caveat of unsecured line of credit is that the borrower would have to demonstrate an ability to pay the debt. Unsecured line of credit is not designated for a specific use or purchase, its main use is to manage cash flow better.  

Would my business qualify for a line of credit? 

Lenders base their credit decision on multiple factors such as credit score, time in business, monthly revenue, history of payment to other lenders, business financials, financial ratio metrics, average available bank balances or type of business and industry. There are hundreds of factors that could be used to determine the likelihood of receiving an approval and securing business financing. These are some of the basic requirements in order to apply:    

•   Details about your business
•   Review of most recent bank statements 
•   650+ FICO (FICO’s below 650 are still encouraged to apply)    
•   1+ years in business  
•   $35,000 in monthly revenue   

Would I qualify for business line of credit with poor credit?

Creditfy understands what it takes to secure an approval and work around some of the requirements. We use proprietary credit technology and risk scoring model to highlight on other important factors that businesses have. Important business factors that banks simply ignore. If your business has poor credit. You should not be discouraged to apply since your cash flow might fill the gap or the time in business if greater than 3 years. At Creditfy, we work with all industries and different types of credit scores. Our funding experts work with you and for you! We can provide financing with FICO scores as low as 500 on a different but similar financing product.   

Lenders use different credit scoring models which yield different risk scores. They use the score to make a credit approval decision. Majority of lenders won’t provide financing to businesses with FICO’s below 675. Creditfy provides financing to businesses with poor credit scores. We concentrate on other important business factors versus just making a hard decision on credit score alone.

Lenders typical credit range is as follows: 760-850 (Excellent), 700-759 (Very Good), 650-699 (Fair), 620-649 (Poor) and anything under 620 is considered extremely poor. With us, we believe that a very poor credit score, or poor credit score is irrelevant when the business is sound overall. At Creditfy, we believe that personal credit shouldn’t be the main focus, but the business itself should be. We take pride when we help a business to obtain funding and set the business for future success and growth. We fund businesses with FICO’s as low as 500 because we know what a sound business looks like. 

Would I qualify for a business line of credit as a new business?

Businesses with low time in business have a major disadvantage when trying to obtain financing. With us low or new business is not an issue. Typically, a business that is new or with low time in business cannot obtain a business line of credit. Most of the lenders have rigid decline rules when businesses cannot meet their time in business guidelines. We provide financing to new businesses with other similar type of products such as working capital loan, bridge financing, equipment financing, merchant cash advance or small business term loan. We work around time in business by concentrating more on the credit score along with other business reports, as a substitute. You can obtain financing if you are purchasing a new business. You can use the funds to buy out a majority stake partner or opening a new location.

Would I qualify for business line of credit with low revenue?

Businesses with low revenue can still obtain a business line of credit especially if the business goes through a period of seasonality. Lenders want to make sure that you are able to cover your debt payments especially with lower revenue. With high revenue you can qualify for $250,000 as an example, but with low revenue the funding amount could be reduced. 

How long does it take to secure a line of credit? 

Since traditional lenders like banks would drag you through a long process. Sometimes up to a month without any reassurance of securing financing. At Creditfy, we believe that when a business is looking for capital – it’s critical to secure financing fast for them! We can fund a business within 24 hours after receiving an approval. On average, it takes few hours to obtain an approval. 

What documents are required to obtain line of credit financing? 

We are not a traditional lender and we don’t ask for a stack of documents. The documents that we require for a fast approval is a signed credit application that takes around 5 minutes to complete along with 3 months of most recent bank statements. During the funding stage, we ask for a voided check along with driver’s license followed by bank verification. At Creditfy, we use technology that enables us to provide fast approval within hours and at times within minutes. We have a seamless funding process. Our customers could receive the funds in matter of few hours after obtaining all of the documents. Apply when you’re ready!