Updated: January, 15 2024 | By: LendVer Staff –
If we all learned one business tip from the pandemic, it’s that having reserve capital on-hand is essential to making it through difficult times. Government stimulus was a welcome relief for many small businesses, but other than the Employee Retention Credit (ERC) most of those programs have expired. Millions of small businesses that are still recovering from a pandemic induced revenue downturn, may face a dire situation once again if the U.S. economy heads into a serious economic downturn. Setting up an emergency line of credit to draw upon as needed for essential business expenses, is critical to ensure the longevity of your enterprise.
What is a Line of Credit?
A business line of credit (aka credit line) works differently from a loan in that once approved, the funds are available for you to access only when you need them. If you desire working capital for future business needs, want cash-on-hand in the event of a business emergency or to make payroll, need advertising funds or wish to grow your business but aren’t sure how yet; then a business credit line is the right option for you.
Unlike a loan, a business credit line often has no prepayment penalty. This means you can draw down funds from your credit line and pay off your balance without penalty. Working capital loans can carry a prepayment penalty which could make it costly for you to pay off your loan early, but a credit line is built to be paid down and drawn from over and over again in a revolving fashion.
There are many additional benefits to a credit line such as no collateral usually being required, they are easy to use, and there are rarely fees or interest charges assessed until you draw funds (unlike a loan). Lenders like Headway Capital and SmartBiz, our recommended best business credit line lenders have fast application and approval processes, funds can be made available the next day, and you can manage your credit line via user-friendly online portals.
What Does a Line of Credit Cost?
The favorable thing about setting up a line of credit, and what makes it great to have in place for emergencies, is that it can cost nothing to set it up or have it in reserve if you need it. Our recommended best business credit line lenders charge no fees to apply for a line of credit or keep the line of credit active (if approved). Fees and interest rates vary by lender and are usually only charged if you draw down from your credit line, and interest will usually only accrue on the amount you have used. There are often no early repayment penalties, meaning if you draw down funds on your line and pay them back soon after, you won’t be penalized.
Where to get an Emergency Credit Line
Applying for a business credit line often does not impact your credit score, and you can usually receive a qualification decision quickly if you have chosen to work with a tech-enabled online lender. Business credit lines are available to a variety of small businesses, and fast funding can be obtained for most business purposes.
Headway Capital provides a business line of credit up to $100,000 called True Line of Credit™ that features longer payment terms, a flexible payment schedule, revolving credit, fast funding, and prepayment benefits.
SmartBiz offers a business line of credit up to $150,000 with low, interest-only monthly payments, minimal documentation is required for approval, and no additional fees for withdrawals are charged to use your credit line.
These are volatile times, and the uncertainty of not knowing where or when your next revenue may come from, or whether or not you’ll be able to meet payroll can be worrisome. Setting up an emergency business line of credit to have in reserve should you need to quickly and easily access working capital, is essential for the success of your business and your piece of mind. Partnering with a best business credit line lender that charges no application or maintenance fees, means you can keep your emergency line of credit in place without accumulating burdensome charges.