Businesses that run through operating cycles, on and off seasons in the summer or winter for example, may find from time to time that a loan is needed to keep up normal operation until the positive flow season hits.  Business owners looking to obtain small amount of funds for working capital to help operate their business should consider getting a business line of credit loan. 

 

What is a Business Line of Credit?

 

A business line of credit loan helps small businesses grow and operate.  This type of loan is designed to finance short-term working capital needs, such as inventory purchases or to pay operating expenses.  These loans are given by financial institutions to operating businesses that meet certain criteria.

 

To receive a line of credit loan, profitable operating businesses must demonstrate a positive cash flow.  The amount of the loan depends on your business revenue performance.  The financial institution will look at revenue and cash flow-past, present and future-to determine the maximum line of credit your business will be allowed to borrow.  These records will help the business owner prove that the loan debt can be repaid during the term of the loan.  Similar to the concept of credit cards, owners are approved for a maximum amount for lines of credit loans, and then they are allowed continuous borrowing and repaying during the term of the loan.  For this matter the loan is also called revolving line of credit.

 

When to Use a Business Line of Credit?

 

This type of program is appropriate for businesses that have seasonal operating expenses or variable working capital demands.  In other words, normal operating expenses that your business is able to cover during a regular business cycle. For example, you would use this type of loan to purchase supplies and inventory.  A line of credit loan allows the owner to borrow the money needed to help meet the demand.  You would not use this type of loan for large long term investments such as buying property, new equipment, or fixed assets.

 

SBA Loans and the Recovery Act

 

According to the U.S, Small Business Administration, "Lines of credit approved on or after March 16, 2009, via Patriot Express or the CAPLines program are eligible for up to a 90% guaranty. Lines of credit approved on or after February 17, 2009, via SBA Express are not eligible for more than a 50% guaranty, but qualify for fee eliminations if the maturity is longer than 12 months."