What Is a Typical Business Line of Credit?
A business line of credit is structured as an open revolving credit facility. This type of funding allows companies to borrow and draw funds when needed on-demand or make purchases or pay expenses. In addition, lines of credit charge principal and interest. Business lines of credit have a limit that cannot be exceeded without a lender’s approval and is not open-ended forever and requires renewal by lenders either semi-annually or annually to be extended.
The primary reason customers are interested in lines of credit instead of term loans is the advantage of a draw feature, affordable rates, and flexible repayment intervals that are viewed as a great benefit. Although it is not a loan, credit lines are popular with companies that need working capital and a fast way to borrow funds.
What’s the Difference/Benefit Between a Business Line of Credit and Business Loans?
A credit line is essentially an account that you’re able to draw money from and pay back only what you take out, like a credit card, because it’s revolving, you’re able to do reenact this cycle as many times as your lender allows (if you’re paying it back). Loans typically have a fixed repayment term. With loans, you have to determine upfront how much you will need as you will not have the ability to draw capital after consummation. Loans are fixed terms and not flexible.
Lines of Credit Product Features
• Credit limits from $10,000 to $500,000 (larger lines may be available case by case)
• Renewal terms from annually to every 18 months
• No origination fee, only draw fees that range from 1.99%-2.99%
• Low $5,000 minimum draw amount
• Competitive rates begin below 1% a month — fixed rates, not variable rates.
Credit lines are like a “credit card” for your business but with more benefits and competitive rates. Below outlines further detail:
Have peace of mind knowing there is a fixed maximum cost on every drawn amount, just by making your minimum payments. Interest is not compound interest like credit cards.
Get more flexibility to purchase equipment, fulfill vendor bills, make payroll, and manage other cash-strapped activities that credit cards cannot handle without having to make a cash advance.
Pre-Pay and Save With No Penalty or Fee
You can also pre-pay and save with no penalty or a fee. Not only does this reduce your cost, but it restores your available fixed amount to pull cash, not credit.
How Do I Get a Business Line of Credit for My Business?
Is It Easy to Get a Business Line of Credit?
Most Common Business Needs and Uses of Credit Lines
• Working capital
• Paying vendors\
• Make payroll
• Cash flow
• Expand operations
• Purchase equipment
• Address repairs
• Fulfill cash-strapped activities
• Instant access to money on demand
• Funds Increased inventory
• Hire employees
• Financing needs for emergency short term cash flow issues
Why Should I Choose a Small Business Credit Line?
The best answer is that it’s flexible!
Most established businesses need capital and want business lines of credit since there is a lot of flexibility in withdrawing the money for business needs. The only difference is a business owner can use it as they need it and only pay interest on the balance owed, meaning they don’t have to pay interest on a balance that they didn’t need at the time.
This is a great product, like a credit card as well, for quick use of money and a fast return on the investment of the capital. In fact, these are commonly used by manufacturers, contractors, and many other businesses that use the money for a range of needs and benefits. They will invest their borrowed money into purchasing products that will then be sold at a profit within a short time, which is better suited than small business loans or short-term loans.
Online banking financing options still have more traditional methods. They typically have the most demanding standards and qualifications as well with loans or a business credit card due to banking regulators. Overdraft protection will be required for your business bank account as well.
Online banking institutions have business lines, but security reasons and other underwritings will benefit cash flow from the bank account, reducing your credit limit periodically. So be sure to ask if this feature applies to your company. With a bank, expect a strict application process that can take up to 30 hours to complete, and with banking lengthy approval or denial time, you might not know if you are approved for the product for up to 30 days, and even then you will have to wait to have access to the cash.
Depending on what you need the financing for and the time frame, this could be a great financing option for your company. However, certain needs and uses for businesses are unsuitable for this product and may be better suited for other financing options, loans, and programs. There may be a better financial product available that you might be interested in when it comes time to borrow.
A convenient and straightforward way to get business financing – now!
Get your quote and talk to our team today by filling out our simple form.