Explore all the available options for lines of credit in the market
Are you looking to expand your business or tackle temporary financial challenges? In the market, there are various credit line options designed to meet the financial needs of different types of businesses. In this article, we will explore the diverse options available, from traditional credit lines to specialized solutions for specific needs.
Option 1: Conventional Commercial Bank Credit Lines:
Traditional commercial credit lines are offered by banks and credit unions. These lines provide financial flexibility by allowing businesses to access funds up to a pre-approved limit. The funds can be used to finance operational expenses, asset investments, or as a backup for financial emergencies. Terms and interest rates vary depending on the financial institution and the creditworthiness of the applicant.
Typically, to apply for a bank credit line, you need to meet the following requirements:
More than 3 years of legally established business
Over $150k in annual revenue
The business must be profitable (report annual profits)
Credit score higher than 650 points for each owner holding more than 20% of the company.
Option 2: Government-Guaranteed Credit Lines:
The federal government of the United States, through the Small Business Administration (SBA), offers loan programs that include guaranteed credit lines. These lines are backed by the government, reducing the risk for lenders and facilitating access to credit for small businesses that might struggle to obtain financing from other sources.
The fundamental requirements for this type of credit lines are:
Operating for profit
Located in the United States
Not being an ineligible type of business
Demonstrating an attempt first to obtain credit on reasonable terms from non-federal sources
The business must be profitable (report annual profits)
Having a credit score of at least 640 points for each owner holding more than 20% ownership.
Being in good standing with government loans
Demonstrating the use of alternative financial resources, including personal assets, before seeking financing
Having no tax liens, recent bankruptcies, open collections, and negative public records.
Proving the use of funds through financial projections or a business plan.
*Something to consider is that an SBA-backed LOC might be a bit slow in its approval process, and it will require a high volume of documentation.
If you want to evaluate your options for this type of financing, click here.
Option 3: Online Credit Lines:
There are some Fintechs specialized in income-based or cash flow-based credit lines in the market. This option becomes ideal for clients with little time in business, lower annual revenue, or a lower credit score. The application time is very short; you can typically get a decision the same day you apply, and the required documents are very few, usually 3 to 6 months of bank statements.
The basic requirements are:
Being legally incorporated for at least 1 year
Annual income from $100k
Personal credit score from 500 points
Being a profitable business
Things to consider in this type of options:
Approval amounts will be a maximum of 1.5 times the monthly business income.
Capital costs will be higher than bank credit lines or SBA-backed lines due to being unsecured and the quick process.
You may encounter payment frequency options such as weekly, bi-weekly, and monthly.
If you want to evaluate your options for this type of financing, click here.
Option 4: Accounts Receivable Secured Credit Lines:
Ideal for:
Businesses with little time legally incorporated.
Cash flow issues due to the gap between their payment cycle and collection cycle.
Businesses with large clients who pay at 30, 60, 90 days.
Basic requirements:
At least 3 months legally incorporated.
Having receivables backed by contracts, purchase orders, work orders, etc.
Having a report of accounts receivable and accounts payable.
Things to consider:
Depending on the lender, your client may be required to pay the invoices directly to the lender later.
You will likely encounter upfront underwriting fee costs.
The process may take 10 to 15 days.
If you want to evaluate your options for this type of financing, click here.
Option 5: Specialized Credit Lines:
There are financial institutions and online platforms that offer specialized credit lines for specific sectors or particular situations. This type of solutions is ideal for:
Technology companies or startups
E-commerce companies
Medical, dental, and healthcare providers.
CONCLUSION
There are different types of credit line options for business owners in the market, ranging from banking options to online or asset-based options. The most important thing here is to evaluate together with an advisor:
What you need the funds for
How quickly you need the funds
Your financial position (annual income, credit score, industry, time in business, assets, etc.)
Estimated return of the funds you are going to use.
At Capifinders, we are ready to advise you and navigate the different financing options with you. To schedule a free consultation.
