Growing a small business takes entrepreneurial initiative and shrewd decision-making, so it’s surprising when some small business owners use a personal line of credit to fund their businesses. One of the first rules of smart entrepreneurship is keeping your personal and business finances separate. More often than not, using personal funds to keep your business out of the red is a slippery slope. When looking for financing resources to keep your business afloat, it makes sense to pursue a business line of credit and keep your personal finances out of danger.

What is a Personal Line of Credit?

A personal line of credit is a line of credit loan available from banks, credit unions, and alternative lenders for personal financial reasons. Unlike a personal loan which requires the borrower to make monthly payments on the lump sum of the loan, a personal line of credit lets you borrow the lump sum but only make payments on the money withdrawn from the personal line of credit (plus interest). Once the withdrawn money is repaid, the lump sum is available again to borrow from—this is called revolving credit. A personal line of credit is similar to a credit card. However, with a personal line of credit, you might also get more flexible repayment options and lower interest rates than credit cards.

The disadvantage to a personal line of credit, as with all revolving credit, is that if you fail to make payments, your credit score can suffer significantly. Personal lines of credit also come with a higher interest rate than other types of loans, the rate is typically variable, and the interest doesn’t count as a deductible expense.

To obtain a personal line of credit, the borrower must have a solid personal credit score and possibly offer collateral, such as a home or car, to secure the loan in case the borrower cannot make the payments. Clearly, a personal line of credit may suit your needs. However, it’s riskier to use a personal line of credit for your business’s financial needs. If you cannot make payments on the personal line of credit, you’ll simultaneously be hurting your credit score and putting your business at risk.

The Differences Between a Personal Line of Credit and a Business Line of Credit

One key difference between a personal line of credit and a business line of credit is the criteria by which a lender scrutinizes borrowers. To get a personal line of credit, you need to have an established history of timely payments, a solid credit score, and a specific debt-to-income ratio. Business lines of credit look at how long you’ve been in business, company revenues, and your business credit score. Although the application process varies by lender, you can expect to submit the following:

• Recent business tax returns
• Recent personal tax returns
• Bank account information and bank statements
• Financial statements (balance sheet, income statement)
• Federal Tax Identification Number or Employer Identification Number (EIN)
• Social Security Number
• Business entity type (sole proprietorship, partnership, corporation, limited liability company)
• Past loan documentation

Although there is no rule against using personal funds for your business, filing your taxes is easier if you keep your personal and business finances separate. With a business line of credit, you can claim losses and deductions for your business. The Internal Revenue Service (IRS) looks carefully at how you organize your finances to determine if your business is a legitimate entity.

Why Get a Business Line of Credit?

Small business owners often juggle finances to pay bills on time and struggle to take advantage of opportunities without going into the red. A business line of credit is a good solution when the business needs flexible payment options, immediate access to cash, and fewer restrictions than a traditional bank loan. Although interest rates for business lines of credit tend to be higher than a bank loan, the revolving line of credit for the business means that once the funds are repaid, the money is again available when needed without having to reapply for another loan. When money is scarce, securing a business line of credit is a good backup fund, and most small business owners can be approved for a business line of credit with no personal guarantee.

A business line of credit can be used for employee development programs, facility improvements, payroll, inventory, or buying new equipment. A business line of credit is also a smart option for seasonal businesses with significant ebbs and sales flows.

What to Do in Place of Using a Personal Line of Credit for Your Business

Many small business owners think using a personal line of credit can save their companies, but this is a road you likely don’t want to travel. You not only have to mix personal and business finances, but you also risk jeopardizing your credit.

Financing Solutions offers a business line of credit with an easy application process (it takes less than two minutes to fill out) and requires no collateral or documentation to get a written offer letter. Other alternative lenders have a much longer application process and can be relatively expensive.

The founders of Financing Solutions have started and grown several companies together, so we understand how important it is to keep costs low. That’s why we don’t charge you to set up the credit line, and there are no maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day. We make approval decisions based on our decade of experience working with small businesses. Find out today why we have five-star ratings from the Better Business Bureau and Google. Also:

• There are no costs to set it up or keep it in place
• There’s an easy 2-minute application online application
• If approved, you’ll receive a same-day, no-obligation offer letter
• The fastest setup—within 48-72 hours
• Once you’re approved for the line of credit, requests for funds are wired to your bank in minutes
• You can use your line of credit whenever needed
• Inexpensive when used (low fees)
• There are no restrictions in place or collateral required
• No personal guarantee is required, either
• Financing Solutions is a leading provider of lines of credit
• We are a reputable company with an A+ & 5-star rating
• You can pay off the line whenever you are ready
• The credit line is easy to renew and renews yearly
• You have a secured account portal access 24 x 7

A business line of credit is an excellent funding resource available whenever your company needs it, without the heavy burden of term loan requirements. If you want to see if your small business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.