Businesses often require quick access to credit for emergency situations, unexpected operational costs and for purchasing inventory or supplies in bulk in order to take advantage of lower prices. For these circumstances, business lines of credit are often an ideal solution.

Identification

Business lines of credit are an established amount of money available to a business to access when it is needed to cover expenses. As the business makes payments on the amount borrowed, the money becomes available for borrowing again.

Types

With a secured business line of credit, a businesses promises property or inventory as collateral, or something the bank can seize if the loan is not repaid. Unsecured business lines of credit involve no collateral and are based upon the profits of the business and, in some cases, the credit history of the business owners.

Features

Before granting a business line of credit, a bank gathers information on an application, such as the business' annual sales, what its profits were in past years and what other money it owes. The bank may require business tax returns, personal tax returns for the company's owners and a company's articles of incorporation or LLC agreement in order to make its decision about whether to extend credit.

Time Frame

Business lines of credit are generally meant only for short-term expenses, such as those that can be paid off within one year.

Benefits

Business lines of credit typically have lower interest rates than business credit cards. Unlike term or installment loans, the line of credit can often be established ahead of time but not accessed until the funds are needed.

Source:

AllBusiness.com: Reasons to Open a Business Credit Line