Published By Janet Gershen-Siegel at May 4, 2018
Corporate credit cards and business credit lines can be yours. But do you know how to get them? We can help.
A credit line, or line of credit (LOC), is an agreement between a borrower and a bank or private investor which sets a maximum loan balance that a borrower can access.
A borrower can gain access to funds from their line of credit any time, provided they don’t exceed the maximum set in the agreement, and so long as they meet all other requirements of the financial institution or investor including making on time payments.
Credit lines offer many unique advantages to borrowers which include versatility. Borrowers can employ their line of credit and just pay interest on what they use, compared to loans where they pay interest on the full amount borrowed. Credit lines can be re-used, 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 various other kinds of financing like installment loans. Oftentimes, lines of credit are not secured, much the same as credit cards are. There are some credit lines that are secured, and consequently easier to qualify for
Credit lines are the most routinely requested loan type in the business world even though they are very popular, legitimate credit lines are unusual, and difficult to find. Many are also very difficult to get approved for calling for good credit, good time in business, and good financials. But there are various other credit cards and lines that few know about that are available for startup companies, bad credit, as well as if you have no financials.
Most credit line varieties which most entrepreneurs imagine come from standard banks and conventional banks use SBA loans as their number one loan product for small business owners. This is due to the fact that SBA insures as much as 90% of the loan in the case of default. These credit lines are the toughest to qualify for because you must qualify with SBA and the bank.
There are two main forms of SBA loans you can normally get. One kind is called CAPLines. There are in fact five kinds of CAPLines that can work for your small business.
You can also obtain a lesser loan amount more quickly using the SBA Express program. Many 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 offered right up to $5 million. Loan qualification requirements are the same as with other SBA programs.
Seasonal Line: This one advances against expected inventory and accounts receivables. It was designed to help seasonal businesses. Loan or revolving are offered. Contract Line- Finances the direct labor and material cost associated with performing assignable contracts. Loan or revolving are offered.
Builders Line: Designed for general contractors or builders constructing or renovating commercial or residential buildings. It is used to pay for direct labor-and material costs, where the building project serves as the collateral. Loan or revolving are available.
Standard Asset-Based Line: For companies not able to meet credit standards associated with long-term credit. Financing for cyclical growth, recurring and/or short-term needs. Repayment results from converting short-term assets into funds. Businesses constantly draw from the LOC, based upon preexisting assets, and repay as their cash cycle determines. This line typically is used by businesses that furnish credit to other companies.
Small Asset-Based Line: This asset-based revolving line of credit of as much as $200,000. This line operates like a standard asset-based line except that a few of the stricter servicing requirements are foregone, so long as the business can routinely show repayment ability from available resources for the total.
You can get approved for up to $350,000. Interest rates differ, with SBA enabling banks to charge as high as 6.5% over their base rate. Loans above $25,000 will need collateral.
To get approved you’ll need good personal and company credit. Plus the SBA states you should not have any blemishes on your report. You will need good bank credit; an acceptable bank score demands you have at least $10,000 in your account over the most recent 90 days. You’ll likewise need a resume showing you have business sector practical experience and a well put together business plan. You will need three years of company and personal tax returns, and your business returns should show a profit. And, you’ll need a current balance sheet and income statement, therefore showing you have the funds to pay back the loan.
To get approved you’ll need account receivables, but only if you have them. As for the collateral to offset the risk, typically all business assets will be accepted as collateral, and some personal assets including your home. It’s not unusual 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 less complicated to qualify for than conventional SBA loans. They also call for much less documentation for approval. These alternative SBA credit lines usually call for good personal credit for approval.
Unlike with SBA, many of them don’t necessitate good bank or business credit approval. Most of these types of programs call for two years’ of tax returns. Tax returns have to demonstrate a profit. Rates can vary from 7% or more and loan amounts range from $25,000 into the millions.
Loan amounts are frequently based upon the revenues and/or profits shown on the tax returns. At times lenders may want other financials including a profit and loss statement, balance sheets, and income statements.
Merchant cash advances have quickly become the most popular way to get financing, in large part as a result of the simple qualification process. Businesses with 10k in earnings can get approved, with the business owner having scores as low as 500. Some sources have now even started to offer credit lines that accompany their loans. You will need to have at least $10,000 in revenue for approval. You need to be in business for a minimum of one year, however three years is preferred. Lenders commonly want to see a credit score of 650 or better for approval.
Loan amounts are typically about $20,000. Lenders commonly do pull your business credit, so you should have some credit already established and at times lenders will want to see tax returns. Rates differ based upon risk for this program, and there typically aren’t a lot of funding sources who offer it.
You can get financing despite personal credit if you have some type of stocks or bonds. You can also get approved if you have someone wanting to use their stocks or bonds as collateral for your financing. Personal credit quality doesn’t matter as there are no consumer credit requirements for approval. You can get approved for as much as 90% of the value of your stocks or bonds. Rates are commonly below 2%, making this one of the lowest rate credit lines you’ll ever see. You can still earn interest as you commonly do on your stocks and bonds.
Credit cards usually offer 0% intro rates for up to two years– rather useful for startups in particular. Credit lines allow you to take out more cash at a more affordable rate than do cards. These are the principal two differences which 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 challenging to qualify for as card approvals are normally very quick, many times automated, while line require an in-depth underwriting review. Lines usually offer lower rates, per Bankrate card rates average 13% while lines average 4%.
A lot of them report to the consumer credit reporting agencies. They all call for a personal guarantee from you. You can get approved typically for one card at the most as they stop approving you when you have two or more inquiries on your report.
Most credit card providers furnish business credit cards including Capital One, Chase, and American Express. These have rates much like 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.
Frequently, when you apply for a credit card you put an inquiry on your consumer report. When other lenders see these, they will not approve you for more credit since they don’t know how much other new credit you have recently obtain. 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 than that will get you declined.
With unsecured business financing, you deal with a lender who focuses on securing business credit cards. This is a very uncommon; hardly any know about program that few lending sources offer. They can frequently get you three to five times the approvals that you can get on your own. This is because they know the sources to apply for, the order to apply, and can time their applications so the card issuers won’t refuse you for the other card inquiries. Individual approvals in most cases range from $2,000 – 50,000.
The end result of their services is that you generally get up to five cards that mimic 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 first approval. Approvals can go up to $150,000 per entity like a corporation. With UBF they actually get you three to five business credit cards that report solely to the business credit reporting agencies. This is huge, something the majority of lenders don’t offer or advertise. Not only will you get money, but you build your business credit also so in three to four months, you can then use your newly established business credit to get even more money.
The lender can also get you low introductory rates, frequently 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 very best cards for points, which means you get the very best rewards. Just like with anything, there are substantial benefits in working with a source that specializes in this area; the results will be much better than if you attempt to go at it by yourself.
You have to have excellent personal credit right now, preferably 685 or higher scores, the same as with all business credit cards. You shouldn’t have any negative credit reported to get approved, you must also have open revolving credit on your consumer reports now and you’ll have to have five inquiries or less in the last six months reported.
All lenders in 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 number of additional advantages and about three to five times more cash in this program than you could get on your own, which is why there’s a fee, the same as all other lending programs.
You can get approved using a guarantor and you can even use various guarantors to get even more money. There are also other cards you can get making use of 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 furnish similar benefits such as 0% intro annual percentage rates and five times the amount of approval of a single card but they are a lot easier to qualify for. You can get approved with a 650 score and seven inquiries (or fewer) in the most recent six months and you can have a bankruptcy on your credit and other negative items. These are much easier to get approved for than UBF company credit cards.
With all preceding cards discussed, you ought to have good consumer credit to get approved but what happens if your personal credit is not good, and you don’t have a guarantor? This is when building company credit makes a great deal of sense even when you have good personal credit, establishing your corporate credit helps you get even more money, and without a personal guarantee.
Company 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 accomplished correctly, business credit may be obtained without any personal credit check and without a personal guarantee– something all other cards talked about can’t deliver. You can get three types of business credit cards. Vendor credit, offers net 20 terms used to kick off a business credit profile. Store credit, get credit cards with high limits at most shops. Cash and Fleet credit, Visa, MasterCard, American Express cards you can use anywhere. These may be acquired without any credit check or guarantee. Limits are frequently $5-10 to start, and can exceed $50,000.
Your small business can get credit cards and financing, if you know where to look.