Lines of credit are excellent financing options for small and medium-sized businesses because they are flexible revolving sources of funding. Here are four things you should know about business lines of credit.

Several Factors Can Impact Eligibility

The first thing you need to consider is the size of your company. If you’re running a small business, then you will likely be eligible. Large corporations typically are not. Start-ups and new businesses are the most common applicants because they need moderate funding quickly and want to build their credit histories. Eligibility can also vary between lenders.

There Are Four Ways To Open Lines of Credit

You can open a line of credit at four types of lenders:

  • The SBA 7(a) Loan Program
  • A Bank
  • Investors
  • A crowdfunding playform

The SBA 7(a) Loan Program and banks are the options most small business owners choose to pursue first. They are straightforward options and provide support for applicants throughout the application process. Investors and crowdfunding are more flexible and their eligibility requirements tend to be far less strict. However, they can carry more risk.

You Can Apply for Secured and Unsecured Lines of Credit

There are two main types of lines of credit: secured and unsecured. Most business owners apply for secured loans because these options provide lower interest rates and larger amounts of funding. Secured loans require collateral.

By contrast, unsecured loans do not require collateral. However, applicants must prove that their businesses are stable, that they have consistent revenue or income and that they can provide multiple repayment options. This means it’s more difficult for business owners to access unsecured loans or get their applications approved.

You Need To Be Aware of Application Requirements

Application requirements may vary depending on the lender you open your line of credit with. First, you need to be sure that a line of credit is the right option for your small business. Check that you meet the lender’s eligibility criteria. If you don’t then you should seek another lender. Most lenders require applicants to submit financial documents such as tax returns and their business plans along with their applications. Some lenders may request additional information, such as the amount of money the applicant is seeking or what he or she plans to use it for.

Depending on your financial needs, you may only seek a business line of credit or you may prefer to apply for multiple sources of funding. Lines of credit are good short-term funding options.