A business loan is a loan particularly intended for business ideas. As with all loans, it requires the creation of a debt, which will be repaid with added interest. There are plenty of different types of business loans, including bank loans, mezzanine financing, asset-based financing, invoice financing, microloans, business cash advances, and cash flow loans.
Entrepreneurs, who want to scale up any business, are constantly looking for loans and today we discuss the business line of credit which could help them.
Business Line of Credit
A business line of credit is a type of small-business loan that provides flexibility that a normal business loan doesn’t. With a business line of credit, you can borrow up to a certain limit — say $100,000 — and pay interest only on the portion of the money that you borrow.
When it comes to establishing a business line of credit – their vital indicators that lending institutions such as banks look into when determining the viability of your business loan. It is important to understand the 5 Cs of small business finance.
The 5 Cs for building reliable business credit
1. Cash Flow – your business will have to illustrate that it will be able to maintain healthy cash flow and make its loan compensations. The lending organization considers your current and projected cash flow forecast as well as a number of other indicators to define your business’s creditworthiness.
2. Collateral – types of appropriate collateral that can help your business secure a loan include equipment, inventory, accounts receivable and real estate. Certain types of equipment finance involve a business leasing the equipment from the lender who owns the title.
3. Capital – business owners should have a certain amount of their own personal equity invested. This demonstrates confidence and gives banks the assurance that you’ll see the operation through financial difficulty.
4. Conditions – lending institutions examine the conditions of the current industry, competitors, customer relationships and any supply risks that are associated with your venture.
5. Character – a business owner’s individual is also considered. A lender will look into the past ventures of a business owner or the director of a company.