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 Texas businesses to borrow and draw funds when needed on-demand, make purchases, or cover expenses. Lines of credit charge principal & interest. Business lines of credit have a limit that cannot be exceeded without a lender’s approval and is not open-ended forever, requiring 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 they are not a loan, credit lines are popular with companies that need working capital and a fast way to borrow funds.
What’s the Difference Between and Benefits of Business Lines of Credit and Business Loans?
A line of credit is essentially a revolving credit line account that you’re able to draw money from an account and only be charged interest on 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).
In contrast, a business loan typically has a fixed repayment term. With a business loan, you have to determine upfront how much you will need and do 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)
- Low interest rates
- 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 (no set loan amount like a loan)
- Competitive rates with interest rates beginning below 1% a month. Fixed rates, not variable rates.
- Short term financing
Get more flexibility to purchase equipment, vendor bills, make payroll, and complete other cash-strapped activities that cards cannot.
How Do I Get a Business Line of Credit for My Texas Business?
Is It Easy to Get a Line of Credit?
- Quick and easy application submission process with decisions same day
- Only application and bank statements needed for pre-qualification (easier than a bank, that’s for sure)
- Same-business-day decision and next-business-day funding
- Seamless online app activation process
- No site visit required
- Repay early with no penalties
- Short term financing
- Actual revolving lines – each payment replenishes available financing
- A tool to access and draw as much as you want whenever you want using an online banking portal or mobile app
- No fixed payments
- No fixed loan amount
- Monthly or Weekly payments
- No origination fee or maintenance cost
- Interest rates – You’ll only be charged interest for the funds you finance from your account and for how long they are used. Accrued daily interest based on the outstanding balance.
- Every new draw gets an additional term to make all payments.
Most Common Business Needs & Uses of Credit Lines in Texas
- Working capital
- Paying vendors
- Make payroll
- Cash flow
- Short term needs
- Emergencies and unexpected expenses
- Expand operations for business growth
- Purchase new equipment
- Fulfill cash-strapped activities
- Instant access to money on demand
- Funds for 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 because there is a lot of flexibility in withdrawing for business needs. The only difference is a business owner can use it as they need it and only charged interest on the balance owed, meaning they don’t have to be charged interest on a balance that they didn’t need at the time.
Experienced bankers in Texas still have more traditional methods and typically have the most demanding standards and qualifications for business loans due to banking regulators. Overdraft protection will be required for your business bank account as well. Texas banks have business lines, but for security reasons and other underwriting benefits, they can check the cash flow from the bank account and reduce your limit periodically. So be sure to ask if this feature applies to your company.
With experienced bankers in Texas, expect a strict application process that can take up to 30 hours to complete. In addition, you can count on banks to have lengthy approval or denial times. 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 access the cash.
Depending on what you need the financing for and the time frame, this could be an excellent financing option for your company. However, specific 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.
Frequently Asked Questions About a Business Line of Credit
That will depend significantly on your qualifications, debt, and ability to pay back, but a good rule of thumb is 100% of the monthly revenue of your business is a good guide.
You can use this product for nearly any business expense you need, whether it’s for bills, managing cash flow, unexpected expenses, new inventory, or equipment purchases. LOC offers more benefits than typical loans.
Secured means that the business line is secured with collateral such as property or a personal guarantee. An unsecured line does not require certain types of collateral but may or may not have a personal guarantee. Businesses should expect higher costs and lower limits without collateral or guarantees for an unsecured line. The best rates and terms require security to borrow.
Not all Texas banks prioritize providing business lines of credit and other business loan options as it’s a high-risk enterprise. You will have to check around if you wish to use a bank to find out who is best.
- Federal members FDIC Equal Housing Lender Bank
- State banks
- Credit unions
- FinTech companies
- Business lenders
- Online banking
- Business credit
- Personal credit
- Business bank account and bank statements (cash flow)
- Collateral (not required)
- Profit and loss (not always needed)
- Debts and expenses
- Real estate as collateral (rare circumstances related to real estate financing, typically not required)
- Fixed assets (not always required)
Some business real estate financing transactions come with a working capital option attached to the loan program.
SBA loans are typically fixed-term loans and not lines.
Which bank is best for a business line of credit? Should I use the bank that handles my business bank account?
The correct question is what financial institution or company offers the best line of credit and meets your specific needs. Sometimes an equal housing lender or bank can be difficult to deal with and get approved for a line. Check out who offers you the best terms and services regardless of the company.
You can get more information, assistance, and a quote by filling out our super easy and convenient quote form on our website and get started today by talking to our team at AdvancePoint Capital.
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