Your Guide to Commercial Lines of Credit

Keeping a business afloat can be a difficult challenge. Seasonal changes can often cause sudden shifts in demand, resulting in unexpected dips or spikes in revenue. Businesses also face other external factors that are beyond their control, such as changes in the economy, competition levels and consumer trends. This fluctuation can lead to financial instability and make it hard for businesses to manage their cash flow. A line of credit means you always have something in hand that will help keep things afloat during those months when revenue just isn’t coming through like expected.

Are you wondering if a line of credit is right for your business? Our guide will take you through everything you need to know using the 5W1H approach: what, who, why, when, where, and how.

What is a Commercial Line of Credit?

A commercial line of credit is a revolving loan that lets you borrow money and pay it back over time. You can use it for things like buying supplies or paying for services to help your business grow. The beauty of a commercial line of credit is that you only pay interest on what you use, and you can access the money when you need it. You also have the flexibility to pay back the loan over time, making this type of financing an attractive option for businesses looking for short-term solutions. With a commercial line of credit, your business has access to the resources it needs, when it needs them. Plus, you can avoid paying interest on money that you don’t use.

In many ways, a business line of credit is similar to a business credit card. However, you can transfer money from your line of credit directly into your bank account, whereas with a credit card, a cash advance will likely come with hefty fees. Plus, credit cards tend to have higher APRs and shorter repayment terms.

Who is a Commercial Line of Credit For?

A line of credit is ideal for businesses that need access to quick, short-term financing. This type of loan allows business owners to draw funds as needed and make payments over a specified period. A line of credit can be beneficial for businesses of all sizes and in various industries and it’s a great way to help manage cash flow and maintain a healthy balance sheet.

Why Do I Need a Commercial Line of Credit?

A commercial line of credit can be a great financial tool for businesses. It is a flexible and convenient form of financing that provides additional capital to business owners when needed most. There are many advantages to using a commercial line of credit, such as:

Easy access to extra funds – A commercial line of credit gives businesses quick access to additional funds when needed. This can be especially useful for businesses with inconsistent cash flow or those experiencing a temporary revenue slump.

Flexible payments – Since the line of credit acts as a revolving account, business owners only need to pay interest on the credit they use. They are not obligated to make fixed payment amounts and can repay in any way they choose.

Few restrictions – Unlike traditional loans, commercial lines of credit don’t require the use of collateral to secure the loan. As long as the business is in good standing with its financial institution, there are few restrictions on how much money can be borrowed and for what purpose.

Cost effective – Commercial lines of credit are often more affordable than traditional loans. Business owners can choose to pay off their balance quickly or take their time and make lower payments, depending on their financial situation.

When Do I Apply for a Commercial Line of Credit?

Having a business line of credit open before it’s needed is always the best way to go. However, if you didn’t plan ahead, it’s no need to worry. Opening a line of credit gets you funding pretty much instantly, and as needed, since you don’t have to take out the whole approval limit all at once. Before applying, a business owner should evaluate their short-term and long-term goals, review their current financial situation, and determine the amount of capital needed for the proposed venture.

How Do I Qualify for a Commercial Line of Credit?

In order to meet minimum requirements and get approved by lenders, who typically ask for information such as this, you should be prepared to produce the following:

  • The last three fiscal year-end, CPA-prepared financial statements
  • Your last two interim financial statements
  • The last three months’ accounts receivable, accounts payable, and inventory aging reports
  • Your most recent corporate tax returns
  • Guarantor personal financial statements and tax returns

In addition, here are some typical minimum financial metrics you may have to meet:

  • Being in business for at least five years
  • Meeting most of the underwriting guideline parameters for the line of credit structure
  • Being in a consistent asset conversion cycle
  • Having good guarantor and senior management experience

Generally, a small business will only qualify for a line of credit if its owner(s) have strong credit, a long financial track record, and collateral to put up. All you’ll need to get approved for a CapFront line of credit is a 560+ FICO score and 6 months time-in-business.

Where Do I get a Commercial Line of Credit?

We know you have options when it comes to selecting an alternative lender for your commeciral line of credit. We hope you’ll consider CapFront for your working capital needs. Our focus is on complete transparency with our clients, and our dedicated relationship managers are bonafide experts in business funding. Our term length ranges from 6 months to 3 years, you could receive up to $250,000, and you can be approved in as fast as 1 day.

Apply with CapFront and you can get the capital you need quickly, without hassle.