Published By Janet Gershen-Siegel at November 10th, 2018
Got a start up? Business credit cards for new businesses can be yours. But first, let’s talk about credit lines.
A credit line, or line of credit (LOC), is an arrangement between a bank or private investor which establishes a maximum loan balance that a borrower can access.
A borrower can gain access to funds from their line of credit at any time, just as long as they don’t go beyond the maximum set in the agreement, and as long as they meet any other requirements of the finance institution or investor including making on time payments.
Credit lines deliver many unique advantages to borrowers including convenience. Borrowers can make use of their line of credit and merely pay interest on what they use, in contrast to loans where they pay interest on the sum total they borrow. Credit lines can be reused, so as you acquire a balance and pay that balance off, you can use that accessible credit again, and again.
Credit lines are revolving accounts similar to credit cards, and compare to other forms of funding including installment loans. Often, lines of credit are unsecured, much the same as credit cards are. There are some credit lines that are secured, and hence easier to get approval for
Credit lines are the most regularly sought after loan type in the business world despite the fact that they are preferred, authentic credit lines are rare, and difficult to find. Many are also very challenging to get approval for requiring good credit, good time in business, and good financials.
But there are other credit cards and lines which few people know about that are readily available for start-ups, bad credit, and even if you have absolutely no financials.
The majority of credit line varieties which most business owners think of come from standard banks and standard banks use SBA loans as their primary loan product for small business owners.
This is because SBA insures as much as 90% of the loan in the case of default. These credit lines are the hardest to get approval for because you must qualify with SBA and the bank.
There are two fundamental forms of SBA loans you can normally procure. One type is called CAPLines. There are in fact five types of CAPLines that can work for your business.
You can also get a lower loan amount more quickly using the SBA Express program. Most of these programs offer BOTH loans and revolving lines of credit.
Per the SBA: “CAPLines is the umbrella program under which SBA helps business owners meet short-term and cyclical working capital needs”. Loan amounts are on offer up to and including $5 million. Loan qualification requirements are the same as with other SBA programs.
This one advances against foreseen inventory and accounts receivables. It was designed to assist seasonal businesses. Loan or revolving types are available.
This line finances the direct labor and material cost associated with performing assignable contracts. Loan or revolving types are on offer.
This line is made for general contractors or builders constructing or renovating industrial or residential buildings. It is used to pay for direct labor-and material costs, where the building project works as the collateral. Loan or revolving types are available.
Standard Asset-Based Line
For businesses not able to meet credit standards associated with long-term credit. Funding for cyclical growth, repeating and/or short-term needs. Repayment arises from transforming short-term assets into funds.
Businesses constantly draw from the LOC, based on existing assets, and pay back as their cash cycle determines. This line frequently is used by businesses that supply credit to other companies.
Small Asset-Based Line
This asset-based revolving line of credit runs right up to $200,000. This line functions like a standard asset-based line save that a number of the stricter servicing requirements are foregone, providing the business can routinely show repayment ability from capital for the total.
You can get approval for up to $350,000. Interest rates differ, with SBA enabling banks to charge as much as 6.5% over their base rate. Loans over $25,000 will need collateral.
To get approval you’ll need great personal and business credit. Plus the SBA specifies you should not have any blemishes on your report. You will need good bank credit; an acceptable bank score requires you have at least $10,000 in your account over the very last 90 days.
You’ll also need a resume showing you have market experience and a well put together business plan. You will need three years of business and personal tax returns, and your business returns should show a profit. And, you’ll need a recent balance sheet and income statement, therefore showing you have the money to pay back the loan.
To get approval you’ll need account receivables, but just if you have them. When it comes to the collateral to balance out the risk, commonly all company assets will be accepted as collateral, and some personal assets which include your residence.
It’s not uncommon to need collateral equivalent to 50% or more of the loan amount. You also need articles of incorporation, business licenses, and contracts with all third parties, and your lease.
Private investors and alternative lenders also grant credit lines. These are easier to qualify for than conventional SBA loans. They also call for much less documentation for approval. These alternative SBA credit lines typically call for good personal credit for approval.
Unlike with SBA, many of them don’t necessitate good bank or business credit approval. Almost all of these sorts of programs require two years’ of tax returns. Tax returns must show a profit. Rates can vary from 7% or more and loan amounts extend from $25,000 into the millions.
Loan amounts are ordinarily based on the revenues and/or profits reflected on the tax returns. At times lenders may ask for other financials including a profit and loss statement, balance sheets, and income statements.
Merchant cash advances have quickly turned into the most popular way to get financing, in large part because of the effortless qualification process. Companies with 10k in revenue can get approval, with the business owner having scores as low as 500.
Some sources have now even begun to offer credit lines that accompany their loans. You will need to have at least $10,000 in revenue for approval. You should be in business for at minimum one year, however three years is preferred.
Lenders commonly want to see a credit score of 650 or better for approval.
Loan amounts are generally about $20,000. Lenders usually do pull your business credit, so you must have some credit already established and sometimes lenders will want to see tax returns. Rates differ based on risk for this program, and there typically aren’t a lot of funding sources who offer it.
You can get financing irrespective of personal credit if you have some form of stocks or bonds. You can also get approval if you have someone intending to use their stocks or bonds as collateral for financing. Personal credit quality doesn’t matter as there are no consumer credit requirements for approval.
You can get approval for as much as 90% of the value of your stocks or bonds. Rates are generally below 2%, making this one of the lowest rate credit lines you’ll ever see. You can nevertheless earn interest as you normally do on your stocks and bonds.
Credit cards usually offer 0% intro rates for up to two years– rather handy for startups especially. Credit lines allow you to take out more cash at a more affordable rate than do cards. These are the main two differences that will have an effect on you between credit cards and credit line. Investopedia even says that, “lines of credit are potentially useful hybrids of credit cards.”
Both cards and lines are revolving credit.
Credit lines are more difficult to qualify for as card approvals are ordinarily very quick, many times automated, while line require an in-depth underwriting review. Lines usually offer lower rates, according to Bankrate card rates average 13% while lines average 4%.
A lot of these business credit cards for new businesses report to the consumer credit reporting agencies. They all require a personal guarantee from you. You can get approval in general for one card at the most as they stop approving you when you have two or more inquiries on your report.
Most credit card companies offer business credit cards including Capital One, Chase, and American Express. These have rates similar to consumer rates and limits are also similar.
Some report to the consumer reporting agencies, some report to the business bureaus. Approval requirements resemble consumer credit card accounts.
Usually, when you apply for a credit card you put an inquiry on your consumer report. When other lenders see these, they won’t approve you for more credit since they aren’t sure how much other new credit you have recently gotten. So they’ll only approve you if you have no more than two inquiries on your report within the most recent six months. Any more will get you declined.
With unsecured business financing, you deal with a lender who specializes in securing business credit cards. This is a very unusual; very few know about program that few lending sources offer. They can often get you three to five times the approvals that you can get on your own.
This is because they are familiar with the sources to apply for, the order to apply, and can time their applications so the card issuers won’t reject you for the other card inquiries. Individual approvals often range from $2,000 – 50,000.
The result of their services is that you commonly get up to five cards that simulate the credit limits of your highest limit accounts now. Multiple cards create competition, and this means you can get your limits raised frequently within 6 months or fewer of your initial approval.
Approvals can go up to $150,000 per entity for instance, a corporation. With UBF they actually get you three to five business credit cards that report only to the business credit reporting agencies. This is huge, something most lenders don’t offer or publicize.
Not only will you get funds, but you build your business credit as well so within three to four months, you can then use your recently established business credit to get even more money.
The lender can also get you very low introductory rates, commonly 0% for 6-18 months. You’ll then pay normal rates after that, typically 5-21% APR with 20-25% APR for cash advances.
And they’ll also get you the best cards for points. So this means you get the very best rewards. Like with anything, there are huge benefits in working with a source that focuses on this area. The results will be better than if you attempt to go at it by yourself.
You must have excellent personal credit now, preferably 685 or better scores, the same as with all business credit cards. You shouldn’t have any derogatory credit reported to get approval, you must also have open revolving credit on your consumer reports now and you’ll have to have five inquiries or fewer in the last six months reported.
All lenders within this space charge a 9-15% success based fee and you only pay the fee off of what you secure. Keep in mind, you get a ton of added advantages and about three to five times more cash with this program than you can get on your own, which is why there’s a fee, the same as all other lending programs.
You can get approval using a guarantor and you can even use numerous guarantors to get even more money. There are also other cards you can get using this same program. But these cards only report to the consumer reporting agencies, not the business reporting agencies. They are consumer credit cards versus business credit cards.
They supply similar benefits which include 0% intro annual percentage rates and five times the amount of approval of a solitary card but they’re a lot easier to get approval for. You can get approval with a 650 score and seven inquiries (or fewer) in the last six months and you can have a bankruptcy on your credit and other derogatory items. These are much easier to get approval for than UBF corporate credit cards.
With all preceding cards, you should have good consumer credit in order to get approval but what happens if your personal credit isn’t good, and you do not have a guarantor? This is when building business credit makes a lot of sense even though you have good personal credit, improving your company credit helps you get even more money, and without a personal guarantee.
Business credit is credit in a company name, that’s connected to the business’s EIN number, and not the owner’s Social Security Number. When done properly, corporate credit may be acquired without a personal credit check and no personal guarantee.
So this is something all other cards above can’t deliver.
You can get three types of company credit cards. The vendor credit tier offers net 20 terms used to kick off a business credit profile. With the retail credit tier, get credit cards with high limits at most stores.
With the cash and fleet credit tiers, get Visa, MasterCard, and American Express cards you can use anywhere. You can get these without any credit check or guarantee. Limits are oftentimes $5,000 – $10,000 to get started. And they can exceed $50,000.
Your small business can get credit cards and financing, if you know where to look. Check out how this will help your company get business credit cards for new businesses.