Because you can pull from the same line again in the following month, these financial products are often called revolving lines of credit . Your issuer will require you to make good on any outstanding debt at least once or twice a year. Lastly, lines of credit usually have a life span of one or two years, after which the institution thats extending you credit can renew or terminate the line. How to obtain each product Both banks and credits unions offer loans and lines of credit. To evaluate the chances of defaulting on your loan, these financial institutions will run thorough background checks on your personal and business credit histories and past borrowing behavior. Youll only be offered the best interest rates if you have a strong FICO credit score of at least 700. A credit score of 630 or below could disqualify you. If your business lacks a proven track record of success but your credit score is strong, a lender may ask you to put up collateral, especially when applying for a line of credit, according to Craig Smalley, a small-business lending expert. A line of credit is usually tied to an asset for collateral, Smalley says. For instance, most lines of credit that small-business owners use are second mortgages on their homes, meaning the collateral is the home. Sometimes, a small business is able to secure a line of credit with the collateral being the assets of the business, Smalley says. The takeaway Although personal loans and lines of credit can each provide the financing your small business needs, they arent interchangeable. Consider a personal loan if you need funds for a one-time purchase, as this will give you time to repay the loan over an extended period of time.
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