On the first quarter of this year, the world was shocked by a phenomenal outbreak that affected more than 180 countries. Reports by Johns Hopkins University prove that more than 30 million people across the globe were infected and almost 1,000,000 people have died from the novel Covid-19. The pandemic affected countries near China – where it is believed it all started. Later on, as days turned to weeks and weeks turned to months, it quickly spread all over the rest of the nations and protocols were immediately implemented.

Because this virus is transmitted through direct contact with respiratory droplets of an infected person, protocols were strictly implemented and observed. Social distancing, national lockdown, curfew were the prompt rules. Everyone is to follow the rules and are restricted to participate in mass gatherings. Schools, restaurants, malls, bars, retail stores, entertainment were forced to temporarily close down in order to contain the spread of Covid-19. These heavily impacted the economic state of the United States of America. Both big and small businesses have an important role to make in the economic health of the country. However, small businesses are hit the hardest that many had to scale down and even close down permanently. The magnitude of the pandemic is described as worse than the Great Recession that happened more than a decade ago as per Karen G. Mills of Harvard Business School.

According to JP Morgan Chase – a multinational investment bank and financial holding services company, main reason why these small businesses closed is due to lack of liquidity – assets that can be easily converted in to cash. This resulted to the permanent closure of more than 100,000 small businesses in America. JP Morgan also states that the average small business has 27 days cash in reserve intended for contingencies like the hit of the pandemic; Main Street Businesses – these are businesses or stores you see in the main street, only has 20 days. With the period of time of the lockdown and social distancing, the most vulnerable will not last long.

Push comes to shove, business owners can resort to loans with 0% interest rate, good payment schemes, short or long term financial assistance from money lenders, or request for a line of credit to allow them have financial buffer to recover and keep their businesses afloat.

Now that you were able to identify some financial assistances, the most suitable for small businesses is acquiring a line of credit. Get a preview of what this can do for you, best line of credit for small businesses, and how to get one as you read line after line.

A line of credit is a business financial tool that gives you access to a pool of funds up to a certain amount of limit. You can withdraw the desired amount and only pay the interest fee; you do not have to pay the available whole sum. You and the lender are arranged in to an agreement of how and up to when you can repay the borrowed funds. Once repaid, the amount is again available for you to be borrowed. You can opt to choose different life spans for your line of credit. Some expires after a reaching a period of time while some are revolving.

There are two types of line of credit and both has its own advantage and disadvantages. They are called secured and unsecured line of credit. The former allows you to borrow more than $100,000 in exchange of non-capital collateral like a lien of blanket. This is an asset that your lender has the right to seize in case you fail to pay your balances; examples of these are equipment, account receivable, or inventory. The value of the asset will be used to liquidate your balance to pay off the borrowed amount.

With the same payment terms, the lateral allows you to borrow up to $100,000 with a more lenient collateral such as personal guarantee. This type of business requires you to have strong business credit file and exemplary banking records as it does not require specific collaterals. 

Now that we have got that covered, let’s move on to when can you use a line of credit?

Most business owners with small companies engage with this financial tool. A business line of credit can assist you to cover your daily operating expenses or through times of contingencies.  It comes in handy when you need funds to operate your business especially during off season. If you are in need to replenish supplies, purchase inventory, employee salary, increase capital, or take a business opportunity, there is no need to worry as you have cash buffer to accomplish all these.

Now all these may sound delightful, however be careful as there are risks that must be taken accounted for. Check out this list below:

1.       Unsecured line of credit has higher interest rate. Since there’s only light collaterals involved, lenders tend to demand higher interest rate or annual percentage rate.

2.       Missteps done when using your business line of credit will severely damage your business credit score. This will further impact your likelihood to be accepted on future loan applications.  

3.       Late payments can cause you to pay high amount of penalty.

4.       To have an open line of credit can be inviting to over spend your funds and pull down your financial habits.

If you can take care of that, you are ready to find out the best lines of credit and how to get approved.

1.       Fundbox – Loved by more than 100,000 small business owners. With the minimum requirements needed, you can easily apply and get approved in no time  as long as you have at least 500 credit points. You get the decision fast and draw funds immediately with just a tap on your mobile app. You can borrow cash as low as $1,000 to $150,000 even if you are just new in the business or just about to start. Manage your business hassle free with their payment terms of up to two years.

2.       Kabbage – Since each business is unique, you can choose the right plan for you with the help of Kabbage. Even with low personal credit  and business credit score, get access to up to $250,000 once application is approved. However, take note that businesses that have been operating for at least a year and has an annual revenue of $50,000 are only ones eligible to apply.

3.       Onedeck – Conveniently get revolving credit line through Onedeck. You can loan cash from $6,000 to $100,000 with 12 months repayment terms that resets after each withdrawal. Enjoy all these if you are at least 3 years in the business, with credit score of 600, has an annual revenue of $100,000, and with a business bank account.

4.        National Business Capital – Similar to Onedeck, National Business Capital asks for minimum requirements when applying for a business credit line. There is no any amount of business credit score needed and there is only at least 3 months of business history required. This makes it easier business owners expand their businesses quickly. Rates might be expensive but with at least $120,000 in annual gross, you can enjoy up to $5,000,000 of credit limit.

5.       Lendio – The difference of Lendio among the other lines of credit is that it matches your company to other hundreds of funders. Although it does not require a single set of requirements, it needs 6 months of business history, at least 560 points of credit score, and $500,000 in annual revenue. In less than 3 days, you get your application result.

If you have chosen the right kind of line of credit for you and your business, let’s make sure your application gets approved.

Although each lender has their own requirements to get approved, it is important that you take care of your financial habits and records. Some lenders might even need to check your personal credit score to make sure you are capable to pay the agreed arrangement.

Lenders will want to see a track record of how your cashflow has been doing. Expect that they will be requiring you to provide supporting documents to enable them review if you are a good fit to be their client. These documents include business license, tax returns, bank statements, and a bank account. It is as important as well that you find a solid collateral that you can offer to the lender if the assessment of your business cashflow is weak.  Aside from that, you should be able to clearly explain your company’s financial status and history. You can consult a professional if needed.

You are likely to be accepted if you meet the requirements and prove that your company generates sales and is profitable, understands how to oversee the business, and you as a business owner has a strategic plan on how to repay the lender in different uncomfortable situations.

With the use of these available lines of credit, you can now maximize the growth and potential of your business. Just bear in mind to take care of your personal, business credit scores, and other financial records to increase the probability of success.