By Daniel Kehrer, Work.com Editor
A business line of credit – ready cash anytime you need it – is a marvelous and flexible financial tool to help a small business grow and keep you in control. Establishing the revolving credit line is cheap, you only pay interest on what you borrow and you can use the line for almost anything:
- Remodel, upgrade or expand your business into a new space.
- Upgrade your phone system, computers or other equipment and technology.
- Acquire extra inventory for upcoming promotions or seasonal spikes.
- Pursue a business opportunity or cover unexpected expenses.
Action Steps
The best contacts and resources to help you get it done
Tap your small business banker for a business line of credit
Banks that serve small biz offer commercial lines of credit. Biggies like Wells Fargo offer small business credit lines up to $100,000 that you can apply for online, even if you're not already a customer.
I recommend: Check the business line of credit line offerings at these banks active in serving small business: Wells Fargo, Bank of America, Washington Mutual, Wachovia, Key Bank. Or for strictly web-based banking, try NetBank.
Prepare the information you'll need to borrow money
To obtain a credit line, you may need to supply financial information about your business and/or yourself to potential lenders.
I recommend: The U.S. Small Business Administration has a good section on points to consider when borrowing money for your small business via loans or lines of credit. Pay special attention to credit history and questions a bank might ask. The Work.com Guide to Building a Business Credit Rating might also be of interest.
Calculate your working capital needs
For help figuring out how big a credit line you need, use this free online calculator.
I recommend: Just plug your numbers into the Working Capital Calculator.
Look to non-banks like UPS and American Express
UPS - a big name in small biz shipping - is also a major small business lender under its UPS Capital wing, offering loans and lines of credit. And the American Express "Open for Business" program offers business lines of credit.
I recommend: Check the case histories of how UPS Capital is helping small businesses grow and see the various small business loan solutions that are offered. The business line of credit from American Express ranges from $10,000 to $100,000 with no collateral needed. There's an easy online application and the APR is as low as prime plus 2%.
Comparison shop multiple sources
Sources of small business credit lines are numerous. To find the perfect fit and absolute best terms, you can comparison shop among many lenders.
I recommend: Enter your information at BusinessFinance or iBank – both are web portals that match lenders with small businesses, to find the best fit for your particular needs.
Need more money? SBA-backed lines to $2 million
The U.S. Small Business Administration (SBA) helps small businesses meet short-term and working capital needs through its CAPLines program. Choose from five types of credit lines, including seasonal, contract-based, builder's line, asset-based and small line.
I recommend: Visit the SBA CAPLines site for complete program details on all types of CAPLines loans and business lines of credit. Also check the types of businesses that are eligible. Local SBA web sites list lenders. Choose a state to locate the nearest district office, or just enter your zip code.
Tips & Tactics
Helpful advice for making the most of this Guide
- Beware of carrying "evergreen" balances on your credit line. To keep the credit in place and your lender happy, you need to periodically pay down the debt.
- While you only pay interest on the portion of a credit line you use, there may be an initial setup fee and possibly an annual fee to keep it open.
- The key factor in obtaining a credit line will be your business cash flow.
- If your biz can't quality for long-term credit, ask for an "asset-based" line.
- Remember, the best time to set up a credit line is BEFORE you need it.
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