Starting a new business in the US can be thrilling, but it quickly eats through funds much faster than most entrepreneurs think it will. There are leasing fees, marketing, software needs, hardware needs, contractors, and unexpected problems that present themselves long before the business can build a steadier stream of income. And without real property to secure a loan, bank lending can be problematic. In such cases, the online business line of credit stands out as one of the most flexible funding options for new entrepreneurs.
What is an Online Business Line of Credit from Lenders?
Online business line of credit is an ongoing credit facility that gives your startup the possibility to get money whenever the need arises, up to a certain limit, and pay interest only on the amount that you have actually used. It is like the use of a business credit card, but you have more control and direct access to cash in your business bank account. Because the whole process is carried out online, approvals are faster, documentation is lighter, and you get the money right away. For startups with fluctuating cash flow, the option might turn out to be a lifesaver.
Why First-Time Founders Should Look Into Collateral-Free Start-Up Loans
The large majority of startups do not possess enough property, machinery, or finished goods to constitute sufficient collateral in order to qualify for a loan through conventional bank financing. The online business line of credit provides instant access to loan funds and is typically one of the fastest ways for a small business owner to obtain financing when traditional lenders may require collateral. Online lenders generally evaluate the following factors when determining your creditworthiness:
- Sales activity
- Bank account activity
- Your individual credit score
- Nature of Business
- Cash flow
We assess your ability to develop new income as opposed to the amount of assets you may currently possess, so online business lines of credit present a better option for startup businesses that are just beginning to establish their business credit.
Ultimately, many startup businesses will utilize this type of facility in order to meet the following needs:
- Fill short-term cash flow needs
- Support for sales and marketing activities
- Acquire initial inventory supplies
- Complete emergency repairs or capital improvements on technology
- Hire contractors or part-time staff
- Support the slow times of the year
The online business line of credit allows entrepreneurs to avoid conventional long-term debt obligations while creating additional financial flexibility.
Minimum Revenue & Time in Business Requirements
For an online business line of credit, most of the business line of credit lenders will want to see at least proof of your business being operational and bringing in revenue.
Typical requirements are:
Time in Business
- Most online lenders request 6-12 months of business history.
- Just a few may approve at lower limits and higher costs earlier.
Year Revenue
- The minimum revenue requirement may be between $50,000 and $120,000+.
- When lenders see more revenue, they provide more credit.
Personal Credit Scores
- A credit score of 600-650+ is often preferred, but flexibility is increasing among fintech lenders.
Bank Statements & Cash Flow
- In most cases, you will need to supply recent business bank statements and other financial information.
- Clear and consistent deposits help your application be approved.
As these are less stringent than those required by traditional banks, entrepreneurs are able to take out Online business lines of credit earlier than usual in their business lifecycle.
Where an SBA Line of Credit Fits In
As another possibility, an SBA line of credit through the SBA (Small Business Administration) is one option available to small business owners through a partnership with banks to provide a partially guaranteed line of credit for small businesses.
The primary advantages of an SBA line of credit are:
- Competitive interest rate
- Higher maximum amount
- Longer term for repayment
- Increased likelihood of receiving financing because of the SBA Guarantee
Typically, to qualify for a line of credit through the SBA, your business must have:
- 1 to 2+ years in operation
- Stronger revenue
- Collateral such as accounts receivable or inventory
- More paperwork
- Longer wait time for approval
For a startup business, online business lines of credit are generally more accessible. As the business matures and achieves success, it may transition to lower-cost lines of credit using the SBA Guarantee.
Conclusion
An online business line of credit is an amazing financial tool for visionary American entrepreneurs who have less collateral. It enables a small business to have the necessary flexibility to take care of cash-flow shortages, invest in the business, and handle unexpected expenses while retaining ownership. When you expand, combining your online business line of credit with an SBA line of credit, for instance, can give your financial base an extra boost. Your startup is capable of growing boldly, one wise step at a time, as long as you have the right tools and borrow responsibly.
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