Have you ever struggled with obtaining financing for your business in an emergency due to late invoice payments, urgent unplanned expenses, or other short-term cash requirements? A credit union business line of credit is an innovative financing option that allows you to borrow money as and when you require it.
All business struggle to obtain financing that can help keep their business moving forward and allow the owners to focus on growth without worrying about funds. In this article, we will go through the concept of a credit union business line of credit and how you can benefit from it.
What is a Credit Union business line of credit?
A credit union business line of credit is a financing option offered to small and medium-sized businesses. When you go to a credit union, they will decide your credit limit based on your various documents and income levels. Once done, you can borrow money up to the pre-determined credit limit under the line of credit. Unlike a typical term loan, you can use the funds anytime and for various business purposes. You can also pay the loan back anytime instead of a fixed monthly repayment involved in a term loan.
Key Point: You can also pay the loan back anytime instead of a fixed monthly repayment involved in a term loan.
Credit Unions are not-for-profit financial institutions owned and operated by their members. As such, the terms of obtaining loans are flexible compared to traditional financial institutions increasing the chances of acceptance. Furthermore, the interest rates and costs are competitive, making it an attractive choice for obtaining credit.
As you repay the drawn amount, the credit becomes available again for future use, providing a flexible and convenient financing option. And the best part is that you pay interest only on the money you borrow.
How can you benefit from a business line of credit?
Most businesses fail due to a lack of funds or improper money management. Access to funds at the right moment distinguishes a successful firm from an unsuccessful one. With a business line of credit from a credit union, you can focus on growing your business without worrying about finances.
Things to consider before applying for a business line of credit
The first thing you should consider before going for a credit union business line of credit is if you need it. If you operate a capital-intensive business requiring high working capital regularly, then a credit union business line of credit is the right option. However, if you are well-funded, have access to less expensive sources of capital, or do not face a liquidity crisis for running your routine business, you can do without a credit union business line of credit.
You should also understand the various requirements for a credit union business line of credit and if you are eligible for it. You should have all your documentation in order before applying for the line of credit.
Key Point: You should have all your documentation in order before applying for the line of credit.
What are the various requirements for a business line of credit?
The prospective lender will review all your financial documents, and your application will be accepted only once you pass their internal review process. Some general requirements that credit unions require for a business line of credit are:
A collateral is an asset that lenders can sell if you are unable to repay the loan, thereby lowering their risk. Some financial organizations provide unsecured lines of credit without the need for collateral. It is, however, available at higher interest rates.
Business Operating Time
Most financial institutions require the company to be typically in operation for at least a year or two. However, this varies from one financial institution to another.
Profit and Revenue
Each lender has their criteria for business revenue and profit that you should qualify for to be eligible for the business line of credit. It serves as proof of your business’s financial health and creditworthiness.
Also, credit score can be a factor. While it’s difficult to predict which of the three major credit bureaus a lender would use to evaluate your loan application, it’s advisable to have your credit reports checked by Experian, TransUnion, and Equifax.
Financial Statements, Credit and Tax Reports
Lenders require information on your financial statements along with credit and tax reports from the last two years. The documents help the lenders understand if you can repay the borrowed amount and if you should be granted the loan. When lenders are doubtful of your financial situation, they may ask for collateral or charge higher interest rates.
Is a business line of credit right for me?
A credit union business line of credit is a great financing option to meet your emergency cash requirements along with funding the working capital of your company. It also allows you to continue business operations without interruption due to cash flow constraints.
Key Point: It also allows you to continue business operations without interruption due to cash flow constraints.