A credit line, also known as revolving credit, provides a number of capital with a loan that has been previously agreed to to the borrower. Like a credit card; credit line is a loan facility that you can use whenever needed, where interest is only charged according to the amount of funds withdrawn. When the amount withdrawn is paid off, your credit limit is normal.
In general, lines of credit have two main categories: with and without collateral. Secured credit lines require borrowers to place business assets as collateral. Apart from commercial property, collateral can also take the form of inventory, equipment, or invoices. With an unsecured line of credit, assets are not needed as guarantor.
How can a business credit line help my business?
The use of credit lines in general includes:
Management of unexpected costs: Loans obtained can function an emergency fund prepared to deal with the emergence of unexpected expenses. It is not uncommon for small businesses to apply for a line of credit, and use it to fund unexpected costs — such as equipment replacement or facility maintenance.
Take advantage of unexpected opportunities: With this financing, small businesses are in a better position to take advantage of opportunities such as discounts from suppliers offered in a limited time span.
Facing seasonal demand: Credit lines are the right tool for balancing cash flows during periods of crowded and lonely orders. Companies typically use lines of credit to finance the procurement of inventory and conduct marketing for preparations ahead of the peak season, or finance salary payments. employees when customers are quiet (low season).
Offer more convenient installment purchase options: Offering installment payment options to your customers can provide a competitive advantage for businesses – but this is also a risky step, such as creating a negative impact on your cash flow. No effort is worried because with a line of credit, you can feel more comfortable extending your consumer credit period because you will always have financing facilities that can be withdrawn if there are late payments.
Is the revolving credit line right for my business?
The following are general requirements that can help you assess if the credit line is suitable for your business:
You are looking for ways to cover short-term business expenses: Credit lines are suitable for temporary needs, such as covering cash flow gaps or seasonal expenditures. This is because one of the biggest advantages it offers is flexibility — the ability to withdraw funds from your credit limit at any time, and there is no limit to how you can use the loan. Therefore, you need to avoid using lines of credit for long-term expenses, because it can limit the ceiling limit for withdrawing your funds in the event of an urgent situation.
You are not sure how much you will need: With a credit line, you will have fast and flexible access to funds that can be utilized whenever needed. This makes it a good choice for situations where you can estimate that there will be a need in the future for external financing, but not entirely sure about how much you need.
You need to finance recurring routine expenses: As long as you do not exceed the agreed-upon limit, and can meet the other requirements set by your lender (such as paying off previous withdrawals on time), the credit line structure allows it to be an ideal solution to cover costs repeated.
You need quick access to funding: Although the application process and funding speed will vary depending on the institution or platform where you receive funding, certain online lenders can approve your application and provide access to funding in only 24 hours – this is the loan provider that you must submit when you need fast funds.
Tips to help you prepare your business credit line application
Use a strategic approach, and determine the appropriate time to submit an application
The best time to apply for a loan is when you don’t need it. This is because your loan will be approved faster when your business finances are in good condition.
Estimate for the next 12 months when checking business capital requirements. If you estimate the need for external funding, you can take steps — such as increasing your credit profile if you have a low score — to ensure you are in a better position to get a more profitable agreement or more diverse financing options.
Start with the lowest credit limit, and try to reach the ceiling over time
You may have to start with a lower limit when you first get access to the credit line — especially if your credit profile is not in very good condition. Even if the credit limit offered is lower than the amount you currently need, it will be very helpful if you take the facility, and gradually try to reach a larger credit line ceiling.
Although the requirements will vary for each lender, they will increase your limit or be willing to renegotiate the applicable repayment period when new progress is achieved – such as when you have increased your credit score, indicating that you have consistently strong cash flow or have achieved growth sustainable income.
How can I get a business credit line?
Small businesses — in particular, new businesses established without a solid credit history — often find it difficult to get a line of credit from traditional lenders, because they cannot meet the loan criteria that apply. Especially in Indonesia, credit line facilities are generally only provided by banks which require a minimum profile of operational history of two to three years the business has been running, or have an annual income of Rp 2,000,000,000.
Therefore, it is the right step for small business owners to switch to an online loan platform, where you can benefit from more flexible loan criteria, as well as simple processes and faster access to funding.