Understanding Business Lines of Credit: Benefits, Types, and How to Use Them Effectively

We all know credits as tools to obtain immediate financing for projects, however, they have many presentations. A line of credit for a company, maybe it’s something you need and don’t know about.

Lines of credit are important types of credit that are used mainly to make rather minimal investments. However, they turn out to be much more useful than they seem.

🏦 Some of the entities that have credit line offers are: Santander Bank, BBVA, among others.

One of the credit lines most outstanding of the moment, is:

• APR for deferred payment

  19,99%

• monthly credit limit

  2.000 €

• Discounts in stores

  Yeah

A business line of credit refers to a contract in which the bank or financial institution allows a certain positive balance to a company. It is a balance of the credit type, but it has its peculiarities.

After the funds are used, the company will only have to pay what it subtracted plus interest. Also, this is during specific time frames, usually monthly.

The amount of funds available depends entirely on the financial institution with which you have the agreement. They also depend individually on the type of plan, the contract specifications, among others.

Therefore, in summary, a business line of credit is a business mechanism where you can have funds on credit periodically. These funds may or may not be used.

As you can see, it is a much more dynamic type of credit. However, as dynamic as the withdrawal of funds is, is the payment thereof. Payment is usually due within a few weeks. Although there are cases in which it can take months.

It works much like a credit card. The difference is found more than anything in the contract specifications or the type of credit line depending on the financial institution that is offering it.

If you are thinking of hiring one account for your companySome of the most outstanding of the moment are:

• free cards

  Credit and Debit

• free cards

  Credit

Lines of credit are a very useful way to have funds greater than usual within a company. It is especially useful for SMEssince they are a great impulse to grow.

However, a credit line is different from a credit card, in fact credit lines have their own particularities. Therefore, it is better to separate them from the rest of the loans.

● They are fast. You can have the money almost immediately.
● You only pay what you spent. Although the interest rates can be a bit high, they can be paid according to different agreements with the financial institution.
● You can choose how much to take from the previously agreed amount. The monthly or weekly amount is the same, but you don’t have to take it all.
● Money is always available. Unless you use all the funds previously stipulated.
● A previous credit history is required. Lines of credit are more difficult to obtain than conventional credit.

● Respond to your financial needs. It is specifically made so that you can use it when you need it.
● It is comfortable. Documentation can be complicated at first, but afterwards the use of the funds is easy and fast.
● You can choose exactly how much to spend so you know exactly how much to replenish. In this way, you have more control over your income and expenses.
● It is a financial cushion. It can work similar to a wild card with which to get out of a crisis.

In other words, it is an excellent way to obtain easier access credits and without so many procedures. However, the specifications of the line of credit may change depending on the financial institution.

Lines of credit are a type of loan that is not usually very variable. As such, the biggest variations that you will find will be divided into the offer that you can find in the market.

Generally, the types of lines of credit are divided between lines of credit for businesses and for individuals. Even so, specifically for companies, 2 types of lines of credit can be distinguished.

● Line of credit with guarantee: It is a line of credit that has a guarantee for the lender. The most remarkable thing is that it usually has less interest.
● Unsecured Line of Credit: Because financial institutions tend to consider this type riskier, unsecured lines of credit tend to have higher interest rates.

Whether or not you can afford one type or another depends on your borrowing capacity and your gross assets. Luckily, there are several options on the market to choose from.

Obtaining a line of credit, without a doubt, is a great opportunity for any company. Luckily, at present, it is a much simpler process than it may appear to be.

The number of requirements that are required for your company to access a line of credit will depend on where you apply. Normally, the most solid banks demand more.

However, there are certain general requirements:

● Being able to demonstrate your fixed income.
● Have a report of the company’s monthly funds.
● Have a verifiable credit history.
● Latest tax returns.
● Not be in the ASNEF.
● Being able to verify borrowing capacity.

These requirements can be applied to different types of credit, since, generally, most of the credits have the same requirements. To acquire a line of credit you must:

● Take a look at your credit history.
● Analyze your borrowing capacity.
● Put other documents in order such as tax returns and other tax records.
● Analyze the options that you can find in the market.
● Take the options that suit you best and divide them by characteristics.
● Next, make the request, the process of which depends entirely on the financial institution.
● You may have to wait a few days to receive the credit. Although, there are some that start in minutes.
● It is possible to have meetings where the specifications of the line of credit are discussed, take advantage of them.

And with that, you would already have everything done to have a credit list. However, the processes are highly variable.

Lines of credit allow you to receive specific and well-defined amounts with flexible payment methods. And although it sounds like only advantages, it also has a few problems:

● Additional interest on the excess: if you withdraw more than the account, you are charged quite high interest.
● Formalization: it is usually necessary to formalize before a notary public.
● High interest rates: permanent availability comes at a cost.
● Percentage commissions: they usually apply at the opening and the contract.
● Need for a credit history.

Despite all this, credit lines continue to have great advantages:

● Constant availability of funds.
● You can use the amount to cover any need.
● It is easy to use.
● You can pay in large places.
● It allows you to take more risks.
● You avoid the bureaucratic process of obtaining one loan after another.

The most striking thing about credit lines is their ability to adapt to any company. For SMEs, having one is almost a necessity.

Business lines of credit are not amounts to simply throw into the air, it is a tool that must be used expertly.

To use it, it is best to take into account the possibilities of the company, that is:

● You should pay attention to how much you will spend and how much you will borrow.
● Ask yourself if you really need to use the credit money.
● Use it punctually, for example, when you want to remodel a place.
● Take advantage of it to fill your inventory.

And with these short tips, you can use a line of credit for your company. Without a doubt, a great opportunity to grow.