Small Business Line of Credit
What is a line of credit? A line of credit, also known as a line of credit or LOC, refers to the amount that the funder will lend you. The line can be used for expenses such as paying staff members, advertising your business and purchasing inventory.
When you submit an application for a line of credit, the underwriters will review it and decide if they are able to give you one. If approved, they may offer more than one type, which can affect how much money you have access to at any given time.
What is a Business Line of Credit
A line of credit is a debt to which the business can only access what it needs when it needs. If you have received a line of credit, then that means you are able to borrow up-to $5 million and repay later with interest as agreed on in your contract. When deciding how much money we need for our line of credit, we must take into consideration the amount of cash flow coming in from customers and subtracting out all expenses related to running the company.
The more information about income and expenditures available, the better chance a business owner has at receiving approval for their line of credits request.
If you have been approved, then this means you can borrow up-to $5 million and repay it when your company needs more.
What is a Line of Credit vs. a Loan
A line of credit is a type of financing that allows a company to borrow money whenever they need it. It’s different from an operating or term loan because there are no fixed payments and the line of credit will be repaid based on the amount of funds drawn from the line.
A line of credit can also increase your financial flexibility by providing access to funds at any time without having to apply for further loans. Rather than borrowing a large sum up front, you can take what you need as you need it and repay the funds back based on the amount drawn.
Unlike most banks who offer lines of credits with variable interest rates, we have negotiated better terms and make faster decisions (1-2 days vs. 6-8 weeks) so you know exactly where you stand.
A Line of Credit Provides Funds On An On-Going Basis vs. Lump Sum
A line of credit provides funding on an ongoing basis and is secured by the business’s assets. It can be drawn down as needed, but a line of credit does not have to be repaid in one lump sum at the end of a period like most other loans or lines of credit .
If your line needs to be refinanced due to growth you will need another line with increased limits. This process is called “blowing up” your current line which may require explaining what happened (increased revenue) when submitting for approval so that they know the increased credit line isn’t because you are having financial problems.
This doesn’t mean that we won’t approve your application if it comes from an increase in demand; just make sure you have all of your ducks a row in line before you submit an application for a line of credit.
What is the Best Way to Use a Line of Credit?
We recommend that you use a line of credit in order to ease the burden on your cash flow. A line of credit should be considered as an extension to your line of credit, not a replacement for it. This is because if you run out or max-out your line then you will need another one which can take time and effort from what could otherwise be focused elsewhere.
When Is It Appropriate to Use Line of Credit?
A line of credits are appropriate when:
- You have had some small success with sales but want more room for growth
- Your business needs to expand due to increased demand (forecasting)
- You have business opportunities before you and leveraging your lines will let you take on those opportunities
- You need to move quickly and a business loan would take too long to secure
- You need flexibility to draw funds quickly from lines of credit and can then pay it back quickly, controlling your interest expenses (for example, to buy inventory wholesale and then quickly sell it at retail)
- Business loans, while attractive, do not fit your current situation
Is it Better to Get a Loan or Line of Credit?
You should decide if you want a line of credit or small business loan. A line of credit is better when you need to be flexible about how much money the company has and when they can get more while a small business loan may have better rates for your needs in this situation.
If you are uncertain about what type of financing will work best, it might help to consider which option would allow them flexibility with their cash flow now and into the future, as well as whether there’s an opportunity cost associated with waiting too long on either choice.
For example, paying off debt using line-of-credit funds could mean not being able to grow sales by taking advantage of opportunities that arise over time; however, loans sometimes come at a higher cost, or in a larger sum than you are ready to use.
Is a Business Line of Credit Easier to Get than a Business Loan?
A line of credit is a revolving line of credit that you can use for your business. You will need to qualify for one before being able to get it and this qualification process may be easier than qualifying for a small business loan, depending on the amounts sought and the borrower’s credit and financial situation.
The qualifications vary, but usually require some personal information like income and assets. We may want to know how much money you plan on borrowing as well as what type of expenses you typically have with the company (such as marketing dollars or travel costs). We may want to see proof that there’s enough collateral available in case something were to happen where repayment wasn’t an option due to unforeseen circumstances such as bankruptcy or foreclosure.
How Does My Credit Score Impact a Line of Credit
Your personal or business credit score can have an impact on your ability to get credit. Most banks will not grant credit to an applicant with a credit score below 620, though this varies. We are often able to help people get the line of credit they need, even if they have a lower credit score.
Credit scores are calculated based on credit history, the number of credit accounts you have, and your credit utilization. There is no universal formula for calculating these factors, and our underwriters look at all factors to help see if we can help you get the funds you need.
How Long Does It Take to Get a Business Line of Credit
It takes about six to eight weeks to get a line of credit from the bank. In contrast, as a direct funder, we are often able to make decisions in one to two days.
How Do Businesses Use Lines of Credit to Grow Their Business?
A line of credit is an agreement between a borrower and lender, where the lender agrees to provide lines of credit at any time in order for the business owner/borrower to purchase anything that they need. The line can be drawn down as needed throughout its run.
Lines of Credit are most commonly used by small businesses with seasonal and sporadic cash flow issues or temporary problems, because these lines allow companies to take out varying loans as needed. They may be paid back in a day, a week or over a longer period of time, depending on the terms of the line.
What is a Revolving Line of Credit
A revolving business line of credit is often referred to as a revolving line of credit. This means that the line can be used over and over again, in contrast with a term loan, which has a fixed amount borrowed for an agreed-upon period before it must be repaid. If you have a $100K line of credit on your business, then you will generally not need to repay all $100K at once–even if you use every dollar from this line. You just pay back what is needed or owed when due based off the terms set up between yourself and your lender.
The easiest way to think about how lines work are by looking at them sort of like checking accounts: The funds inside are available for withdrawal immediately, but unlike a checking account, they must eventually be paid back with interest. In some ways it is similar to credit cards, where you spend and then repay the balance on the credit cards.
A revolving line of credit allows the company to borrow money from time to time, up to a set limit; in exchange, the business agrees to pay interest on what it’s borrowed and eventually repay all or part of what was initially lent.
A line of credit can be either secured (the lender holds collateral) or unsecured (no collateral).
If you’re getting started as an entrepreneur and are worried about coming up with enough cash for your operations until they take off, then securing a line may be right for you since if it defaults you lose something other than just your word.