Business Line of Credit

What does Business Line of Credit mean?

In order to gain short-term loans, most of the businesses open Business Line of Credit. These funds support businesses’ various kinds of expenses. The expenses include operational expenses. The amount that businesses take from the Business Line of Credit is not entirely payable. However, there is some interest rate set. Businesses have to pay that interest amount within a set time period.

Getting a line of credit for your business gives you access to funds that you can use whenever your company needs a boost in financing. Like credit cards, it lets you withdraw what you need and when you need and you only pay interest on what you borrow. Business Line of Credit is a great tool when you have just begun your business and it is in the phase of growth. You can avail funds any time you want, to finance the operations of your business.

How does the Business Line of Credit Work?

We will begin talking about the most notable advantages of the Business Line of Credit. One, borrowers are only required to pay the interest on the borrowed amount. Two, the interest is usually lower than that of the regular loans that banks provide.

Suppose you have a business and have an irregular income from month to month. You apply at a bank for a personal line of credit worth $10,000 just in case he runs low on cash for a period of time. After checking his credit history, the bank agrees that if you draw $1,000 from your credit line, you are only charged some interest amount on the $1,000 you just borrowed. Now you know that you have taken a line of credit worth $1,000, but you are still left with $9,000. You can draw as much as you can until you reach the amount of $10,000. And, you will be charged only the amount you borrow.

What is the Revolving Line of Credit?

Revolving credit is a type of credit that does not have a fixed number of payments. In contrast to installment credit, credit cards are an example of revolving credit used by consumers. However, corporate revolving credit facilities are typically required to provide liquidity for a company’s day to day operations. It is fundamentally an arrangement which allows for the loan amount to be withdrawn, repaidm, and redrawn again in any manner and any number of times until the arrangement expires.

For example, suppose you have the amount of $100,000 as a line of credit. Further, let’s say you borrow $10,000. Now the remaining credit amount will be $90,000. If you repay $10,000 before withdrawing any further loan, your line of credit amount will again become $100,000. This process is known as the revolving line of credit.

What is the difference between a Line of Credit and Business Loan?

Both are the ways to finance the operational expenses of your business. While simple loans may be taken for various purposes, business loans are usually taken to finance newly started businesses to get them going. On the other hand, a business line of credit is an amount that you may take on short-term bases.

One of the biggest differences between a Business Line of Credit and a Business loan is that when you take a business loan, you have to utilize the entire amount and the interest rate will be applicable on the entire amount borrowed. On the other hand, Business Line of Credit enables you to borrow an amount out of the entire credit amount present in the bank. In case of the Business Line of Credit, you would not need to pay an interest on the entire credit amount available in the bank. In fact, you will only need to only pay the interest on the amount you will borrow.

In addition to this, if you are planning to launch a large project, business loan is a great choice. On the contrary, if you are looking for day to day operational expenses, Business Line of Credit is a great option.

Secured Vs. Unsecured Line of Credit

Secured and unsecured lines of credit come with a few differences. One of the biggest is that while a secured line of credit is accompanied by a collateral, an unsecured line of credit is not guaranteed by any collateral such as home or any other asset.

Which one is a good choice and why collateral creates a difference? Well, if you take a line of credit with your home as a collateral, you will have to give up on your home in case of not being able to pay back. On the other hand, an unsecured line of credit is free of any collateral so there is no risk of losing any of your assets. Therefore, a secured line of credit is considered to be riskier than the latter.

Business Credit Card Vs. Business Line of Credit

A business line of credit is a fixed amount set. You may withdraw as much as you want within the limit of the amount you have as credit. You can access the amount as soon as you want. While everything is almost similar in the Business Credit card and the Business Line of Credit, there are a few purchases and payments that cannot be made operational with the usage of a business credit card.

Business Expenses You Can Use a Credit Line For

Lines of credit are intended to be flexible financing options custom-tailored to your needs. You can use them to cover expenses that are weighing your business down, or pursue exciting new growth opportunities. There are no restrictions on how you must spend this money— you can put it toward any expenses. Some of the most common ways that businesses utilize this business financing option include:

Grow Your Business

Ramp up your business and cover the expenses needed to expand hiring, payroll, take on new jobs, and more.

Operating costs

Always have cash on hand for rent,utilities, and other costs required to keep your business going on a day-to-day basis.

Marketing campaigns

Drum up new business and take on more customers with additional marketing campaigns in the mix.

Seasonal slow periods

Get the capital you need to keep your business moving during seasonal slow periods.

Inventory or supplies

Purchase additional inventory or supplies to capitalize on busy periods and new opportunities.

Payroll

Keep a reservoir of funding to cover the costs of payroll, especially with slow-paying clients.

How to qualify and apply for the Business Line of Credit?

While qualifying for the Business Line of Credit can be difficult at times, it is not impossible. There are few things that you should meet as a corporate company in order to be eligible for the Business Line of Credit. Distinct lenders will ask for distinct qualifications. Therefore, you should be ready for any sort of documentation or query. At times the lenders will look for your financial history, while other times they will if you are nationally or internationally registered. To be specific, the things they will look for is your business should have started 1 year ago; your annual revenue should be more than or equal to $120,000; and, your business should not have a minimum credit score.

At times, when people own a business and they have not spent a year serving, they provide the lenders with personal guarantee. Sometimes the lenders are kind enough to give the Business Line of Credit after getting cleared about a few confusions.

Business Credit Card Vs. Business Line of Credit

A business line of credit is a fixed amount set. You may withdraw as much as you want within the limit of the amount you have as credit. You can access the amount as soon as you want. While everything is almost similar in the Business Credit card and the Business Line of Credit, there are a few purchases and payments that cannot be made operational with the usage of a business credit card.


1 year in business

Even as a young, growing business, you can still find credit line options.

$120K in annual revenue

To qualify, your business must be generating a minimum of $10,000 in monthly revenue

No Minimum Credit Score

We have financing options for businesses with excellent and bad credit.

Applying for a Business Line of Credit

01

Apply

Fill out our simple 60-second application to begin the process. Then, complete your online application by connecting your bank statements through our bank-grade portal in under 3 minutes.

02

Review

Consider multiple loan options available within our marketplace. Hear your options explained by a knowledgeable Business Financing Advisor, and ask any questions you have.

03

Get Funded

Select the best option available and get funded in as little as a few hours. Start using your cash to grow your business right away, without restrictions on how you can use the funds.

How to calculate Interest Rate on a Business Line of Credit?

Interest rates on the business lines of credit vary according to the lender you are borrowing money from. If you are taking the Business Line of Credit from a direct lender, there is a high probability that the interest rate will be high and you have no choice but to say yes to it. On the contrary, if you are taking out a loan from a public institution or a marketplace, you have many options to avail.

Now, for example, the interest rate is 10% on the amount you borrow from the total credit available. If you borrow $1000 out of the credit balance of $10,000, you will have to pay back $100 yearly, if we calculate the interest using the interest rate - which is 10%. The amount $100 can be divided by 12 to get the monthly interest amount.

Business Line of Credit: Benefits

TRUE Line of Credit

Get cash on hand, and draw more whenever you need it.

Pay As You Go

Never over-borrow— only pay for what you take.

Immediate Access

Seize new opportunities or cover expenses now.

How Can You Use Your Business Line of Credit?

01

Business Growth

Buy new equipment or inventory, hire new staff, or prepare for seasonal changes.

02

Business Expenses

Get extra working capital to manage payroll, bridge gaps in cash flow, or pay bills.

03

Business Opportunities

Expand or open a second location, take on more clients, or capitalize on bulk order discounts.