As a business, it is important to have access to funding in order to cover expenses in a timely manner. One option to consider is establishing a line of credit. This provides a guaranteed amount of funds that can be accessed as needed, eliminating the need to navigate a lengthy loan application process.

A line of credit is particularly beneficial for companies that have ongoing, small financial needs rather than infrequent, large expenses.

Comparison – Line of Credit Vs Business Loans

When considering financing options for your business, it is important to understand the differences between various types of loans. A line of credit is a unique option that should be evaluated alongside more traditional business loans. The choice between the two will depend on the amount of funding needed and the intended use of the funds.

Business loans typically provide –

• A one-time lump sum payment

• Needs repayment at a fixed interest rate

• They also have stable and anticipated monthly payments

• And may include closing costs or penalties for early repayment.

In contrast, a line of credit is an ongoing source of funding that can be accessed as needed, similar to a credit card. It is important to carefully evaluate the terms and conditions of each type of loan to determine which option is best suited for your business needs. If you get qualified for such loans, you must:

– A fixed amount of money to be borrowed.

– Flexibility that lets you borrow any amount at any given time

– Monthly payments for a line of credit are calculated based on the amount borrowed

– A variable interest rate that is comparatively lower than the given prime rate.

– Also a draw fee for borrowing money against the credit line

– And lastly, fewer closing costs.

It is important to note that both a line of credit and a traditional business loan require a strong financial standing, good cash flow, and a solid credit score apart from a strong financial support system.

When Should You Use a Line of Credit?

A line of credit can be particularly beneficial for businesses that experience predictable fluctuations in cash flow, such as retail establishments. These fluctuations, often due to seasonal changes in sales, can make it difficult to maintain adequate working capital. A line of credit provides a reliable source of funding that can be accessed as needed to cover expenses during slow periods.

You can use a line of credit when:

– You need a short-term increase in working capital

– You fail to meet with the payroll deadlines

– You need help to cover associated expenses and for hiring employees

– For increasing marketing efforts for certain special events.

In normal conditions, each of these above mentioned expenses do not qualify for a traditional business loan as they may not be concrete. Although, as a line of credit loan is based on the overall financial standing of the business and not a more detailed spending plan, business owners can get the desired funds for their business requirements.

Similar to a business loan, a line of credit can be secured or unsecured. Secured credit lines require collateral to back them up, while unsecured lines are based on the overall creditworthiness of the business. However, in both cases, there is a risk of loss for the borrower if payments are not made on time. The lender may take possession of the collateral or have the option to sue the borrower for the unpaid debt.

To minimize these risks, it is important for businesses to maintain a good credit score, establish a dedicated business bank account, and keep detailed records of financial information such as cash flow, profit and loss, accounts payable and receivable, revenue streams, assets, and income. This information is often requested by lenders when deciding whether or not to extend a line of credit to a business.

When applying for a line of credit, it is also important to be aware of any fees associated with the credit line, such as borrowing or account maintenance fees. Additionally, businesses should understand the current line of credit rates and the payment structure in order to effectively manage their credit.

Benefits of Using Line of Credit

Obtaining a business line of credit may seem like an unnecessary step when credit cards offer similar borrowing options. However, credit cards can come with fees and penalties that may change unexpectedly. On the other hand, interest rates on a line of credit are often lower, and regular payments can improve your credit rating.

Additionally, when compared to some of the top providers of business loans, monthly payments on a credit line tend to be more manageable, and you have the flexibility to access funds as needed without worrying about running out of money. It is important to note that, as with any loan, it is crucial to be diligent in paying off what you borrow to avoid long-term debt.

Obtaining a business line of credit is an important aspect of maintaining financial stability for a company. While traditional brick and mortar banks may be a source of funding, they may not always be the best option for every business. Online lenders provide an alternative, streamlined approach for obtaining a line of credit and may be more willing to provide funding to those who may not be approved by traditional banks. Furthermore, online lenders often provide funds at a faster rate than traditional banks. When selecting a lender or lending platform to provide a business line of credit, it is essential to consider several key factors such as interest rates, fees, and terms of repayment. It is also important to conduct thorough research and compare different options to determine the best fit for your business.

– Company Reputation : When evaluating potential lenders for a business line of credit, it is important to consider the reputation of the lender. Traditional brick-and-mortar banks may have a established reputation, but online lenders may also provide a reliable service. It is essential to conduct thorough research to evaluate the reputation of online lenders. One way to assess the reliability of an online lender is to check their rating with the Better Business Bureau. A high rating, such as an A+, can indicate that the lender has a track record of providing reliable service.

– Credit requirements : Also, it is important to consider the risk tolerance of potential lenders. By understanding a lender’s minimum credit requirements, you can efficiently identify which providers may be suitable for your business. While traditional banks may have stringent credit requirements, many online lenders have a more flexible approach and may consider a variety of factors beyond the credit score when evaluating an applicant’s suitability for a line of credit. It is important to review the specific requirements of each lender and to seek out those that align with the credit profile of your business.

– Amount Limits : When seeking a business line of credit, it’s important to have a general understanding of the funding needs for your business. While the specific purpose of the funds may not be clear, it’s still important to have a rough idea of the amount required. Lenders typically have a range of credit lines they offer, with a minimum and maximum amount. If your funding needs exceed $500,000, a business line of credit may not be the best option for your business. However, many leading online lenders offer credit lines starting at $100,000 and some can extend even beyond that.

– Funding Speed : One of the major benefits of online lending is the speed at which funds can be accessed. The approval process is often much quicker than traditional banks, and borrowers can start utilizing their credit lines in a matter of days or weeks. This can be especially beneficial for businesses that need funding quickly for unexpected expenses or opportunities.

– Fees and APR : As a savvy business owner, you understand the importance of securing the right financial products to support your operation. One such product that can prove invaluable is a line of credit. When seeking out a line of credit, you’ll want to choose the option that offers the best value for your business. One key factor to consider is the annual percentage rate (APR). The APR takes into account the cost of the line of credit, including interest and any associated fees, and expresses it as a yearly rate. By selecting a line of credit with the lowest APR, you can ensure that you’re getting the most cost-effective option for your business.

Top Business Line of Credit Providers

OnDeck

Perfect for – Businesses on a small basis that need fast cash access.

Amount – Allows $100,000 to be borrowed on borrower’s decision

Requirements – To qualify for an OnDeck loan, you must have a business that is an year old and a credit score of 600+ with an annual revenue of $100,000. Also, you must be am 18 year old citizen of US.

Repayment Fees and Terms – Ranges from 6 to 36 months. If you opt to pay back your loan early, there is a prepayment option and an initial origination fee.

Funding Time – Simple and easy application process. OnDeck is also known for its great customer service. You receive your funds within 24 hours, once the application is approved.

Bottom Line – An ideal loan provider for small businesses with A+ BBB rating. You can easily apply for the loan in minutes or simply speak to an executive loan specialist on the phone.

 

Fora Financial

Perfect for – New business with weaker credit scores and need quick funds.

Amount – Allows from $5,000 to $500,000

Requirements – In order to qualify, you must be in the business for a minimum 2 years with no open bankruptcies and a monthly revenue of $15,000.

Repayment Fees and Terms – Loan term ranges from 3 – 15 months and the merchant cash advances have no set terms. For early repayments, borrowers can quickly repay with repayment discounts.

Funding Time – Simple, quick and straightforward loan provider that takes just minutes to complete the application process. Loans are approved in just 24 hours and borrowers receive the funds within 72 hours of approval.

Bottom Line – Ideal for people looking for quick finance services with fast approval and personal services and help. Borrowers obtain short term loans or merchant cash advance to grow their business.

Mistakes You Must Avoid when Using Line of Credit

A business line of credit can provide an effective solution to cash flow challenges. However, to ensure its effectiveness, it’s important to avoid making common financial mistakes. To maximize the benefits of a business credit line, consider avoiding the following:

– Procrastinating the loan application process

– Failing to compare various loan options offered by different lenders in terms of rates, terms and eligibility criteria

– Overlooking potential opportunities to improve credit score and get better loan terms

– Neglecting to inquire about the lender’s right to recall the loan

– Over-utilizing the credit limit

When seeking a lender, it’s important to be diligent and thorough in the evaluation process, and to establish a well-planned payment structure to avoid any potential financial difficulties. With a properly structured business line of credit, your company can be better equipped to overcome unexpected expenses or slow business periods, and maintain its financial stability.

Applying a Line of Credit or Business Loan

If you are considering obtaining a business line of credit or are in search of the best loan options, we suggest that you examine the chart provided and review the top lenders available. Our comprehensive assessments will assist you in making an informed decision that will contribute to the success of your business.