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Business Lines of Credit
Business lines of credit provide small businesses with a convenient means to access funding that can be used for short-term working capital needs. They may also act as an insurance policy against unexpected financial hardships or growth opportunities that require additional capital.

Lines of credit are revolving accounts that enable businesses to borrow from a predetermined amount and use those funds as needed. Unlike traditional small-business loans, which provide one lump sum with fixed monthly repayments, lines of credit typically provide flexibility to use funds as needed and no interest charges.

Qualifications for a business line of credit differ by lender, but many banks and some credit unions will require information such as earnings, balance sheets, financial statements and tax returns to approve your application. According to Amy Detweiler – senior analyst with Bankrate – some online lenders also check both personal and business credit scores.

Some lenders may require physical collateral for a secured business line of credit, such as equipment or real estate. This type of credit line usually has lower limits than its unsecured counterparts.

Like other financing options, lines of credit offer both advantages and drawbacks. They can be beneficial for smoothing cash flow and mitigating liquidity or cash flow volatility issues; however, excessive use can lead to significant costs. That is why it’s essential to pay off your line of credit in full as quickly as possible; this encourages responsible spending, builds your business’ credit profile, and may even improve future lending options.