Microenterprise owners and/or entrepreneurs most often begin with an epic business idea. However, all too often, these business masterminds lack the capital to act upon their surefire notion. Additionally, entrepreneurs and microenterprise owners tend to enter the business and financing worlds with little experience. This double combo — little, if any, capital and limited business history — sets up a less-than-ideal financial situation in terms of getting approved for new business funding.
However, astute lenders have recognized this largely unmet financing need in the lending marketplace. And, as a result, they have crafted a lending product that offers borrowers an opportunity to finance their riskier financing scenarios. To reflect the elevated level of risk present in these specific lending circumstances, creditors compensate for their exposure to risk by raising the interest rates. This follows the standard lending philosophy where bigger risks bring about bigger rewards.
The financial product available to entrepreneurs and small business owners with a strong need for cash/capital is called the Stated Income Business Line of Credit. It is often a game-changer for new businesses and microenterprises that begin cash-challenged.
What is a Stated Income Business Line of Credit?
Stated Income Business Lines of Credit are a revolving credit option that is underwritten to more lenient lending guidelines than more traditional lines of credit. A Stated Income Business Line of Credit works as follows. This line of credit…
- Is available to entrepreneurs and startup owners, where there once was no option.
- Is available without income check requirements, i.e. hence the name Stated Income.
- Is offered with a collateral requirement.
- Is a revolving line of credit. Credit can be reused when the monies are repaid, even if it is only incremental.
- Is generally a funding option for any business type strapped for cash.
- Is a great source for emergency fund reserves.
- Can be available for several months or for several years. This loan feature can often be negotiated with the lending institution.
- Is offered with credit limits of several thousands of dollars to several million dollars.
- Is a prudent way to begin to establish your business’ credit profile. A quality business credit history opens financing options with larger lines of credit and, reduced interest rates.
The reality is Stated Income Business Lines of Credit offer an easier path to approval, however, borrowers must still meet the established lending criteria.
How to Get Approved for a Stated Income Business Line of Credit?
A business line of credit that that is offered without an income check is a great choice for those borrowers in need of business capital, but do not have a documented income history or a verified business credit history to convince an underwriter of their creditworthiness.
A borrower applying for a business line of credit should have a solid personal credit history. It is noted that these lines of credit will not be approved if there are liens and/or bankruptcies in the borrower’s credit history. Because Stated Income Business Lines of Credit perform the same as a revolving credit card, underwriters pay special attention to a borrower’s credit card use and history. A borrower should have at least one year of prudent credit card use.
The Benefits of using a Stated Income Business Line of Credit
Stated income business lines of credit are valuable financial tools for many borrowers in need of cash/capital. Startup businesses find these non-income verification lines of credit quite helpful especially for those entrepreneurs and microenterprises who can only provide a lending underwriter with a limited (if any) business credit or income history. In addition to the access of capital when there once was none, these lines of credit offer –
A Chance to Establish and/or Strengthen a Business Credit History
A business credit history is required to further expand a business at some future date. It is also a smart way to begin to separate your personal credit from a business credit profile.
An Opportunity to Start or Grow a Business Without the Need for Collateral
A Stated Income Business Line of Credit is often the only type of credit for which an entrepreneur may qualify. An unsecured revolving credit line, like the stated income business line, permits entrepreneurs to start a business without the risk of losing currently owned assets.
An Opportunity to Secure Higher Credit Limits.
Although a Stated Income Business Line of Credit performs similar to a revolving credit card, the business line of credit generally offers substantially higher maximum credit limits.
Essentially, you can expect to receive the following benefits if the line of credit is used prudently.
Overall Benefits.
- A prudent way to set up emergency reserves and to maintain a steady business cash flow.
- Financing without the need to pledge collateral.
- Reusable credit during the access period.
- More lenient underwriting approval guidelines.
- Optional payment options.
- Credit line limits that exceed traditional credit cards.
Drawbacks.
- An unsecured line of credit is considered a risky lending scenario. This leads to higher costs and interest rates.
- The higher financing costs make this financial product most prudent for short-term objectives. It is ill-suited for certain business needs.
Is a Stated Income Business Line of Credit the same as an Unsecured Business Loan?
State income business lines of credit differ from unsecured business loans in one significant way — a line of credit offers reusable funds. A line of credit is best suited for short-term objectives. A line of credit is generally underwritten to more lenient guidelines but is more costly than a traditional business loan.
Conversely, a business loan is funded just one time. When the borrowed monies are repaid, they are no longer available. When the loan balance is paid in full, the loan account closes. Should you want additional financing, a new loan application must be submitted.
The stated income business lines of credit and unsecured business loans are similar in that they both are offered without collateral.
How to Use Stated Income Business Lines of Credit?
Lenders and creditors do not limit the ways in which a borrower can use the funds available through stated income lines of credit. However, borrowers are advised to recognize that this business line of credit is a viable option, but an expensive financing option. For this reason, borrowers should be prudent in the ways in which they use these funds –
- Begin a startup by financing initial expenses.
- Purchase supplies for a quick resale.
- Marketing startup costs.
- A source of emergency reserves.
- A great resource to manage cash flow requirements, among others.
Innovative financing is created for ingenious microenterprises owners and entrepreneurs. Stated income business lines of credit offer access to capital for difficult and risky financing scenarios. However, they do so with higher rates that compensate lenders accordingly.
But for those in need of financing and, understand the nature of how a no-income check line of credit works, a Stated Income Business Line of Credit is often the best if only, financing opportunity.