A small business line of credit is a short-term revolving line of credit used for operating expenses such as covering bills, payroll, or unexpected needs. A business line of credit can function as an emergency fund ready to borrow from when needed.
Like a revolving credit account, borrowers are approved for a preset lump sum and can use any amount of the money (up to the credit limit). Borrowers then make payments on the borrowed amount until the money is paid back to the account. Depending on the loan’s terms, interest is only paid on the borrowed amount and not the entire sum. Then, once the money has been repaid, it is available to borrow again.
Most people are familiar with a home equity line of credit or a personal line of credit, which works similarly to the business line of credit. The difference lies in the purposes of the loans. For home equity or personal line of credit, the lender expects the borrower to use the money for home improvement and personal uses. In a business line of credit, the lender expects the purpose to be tied to the borrower’s business.
Summary
Revolving Line of Credit vs. Small Business Line of Credit
When deciding between revolving credit and a business line of credit, it’s essential to understand the key differences.
Secured and Unsecured Revolving Credit
A secured loan means the money borrowed is backed by collateral. Collateral is a type of asset required by lenders to protect the lender from default if the borrower fails to make their payments. Typical collateral includes real estate, invoices, inventory, and equipment. An unsecured loan does not require collateral. Business credit cards are unsecured revolving credit agreements, while business lines of credit can be secured or unsecured.
Higher Interest Rates
For both revolving credit and a business line of credit, interest begins to accrue when the funds are borrowed. However, interest rates for business lines of credit are typically lower than those for revolving credit/business credit cards. Business credit cards generally charge more than 20% APR for purchases and even more for cash advances. Also, while personal credit cards have initial periods with 0% APR, business credit cards do not. Lenders for a business line of credit look at more than the borrower’s credit score when deciding on the interest rate.
Loan Terms
The greatest difference between a business credit card and a business line of credit is that the line of credit is a short-term loan. While a business credit card lasts until the card owner or credit card company closes the account, the business line of credit has a pre-agreed upon draw period, usually 12 to 24 months. All open revolving accounts contribute to the borrower’s credit utilization, so paying the required amounts on time is crucial.
Contact Financing Solutions for More Information On Your Small Business Line Of Credit
Financing Solutions is an alternative lender offering an easy application process (it takes less than two minutes to fill out) and requires no collateral or documentation for a written offer letter. Other alternative lenders have a much longer application process and can be pretty expensive.
The founders of Financing Solutions have started and grown several companies together, so we understand how important it is to keep costs low. That’s why we don’t charge you to set up the credit line, and there are no maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day. We make approval decisions based on our decade of experience working with small businesses. Find out today why we have five-star ratings from the Better Business Bureau and Google. Also:
There are no costs to set it up or keep it in place
The easy 2-minute application online application
If approved, you’ll receive a same-day, no-obligation offer letter
The fastest setup, 48-72 hours
Once you have the line of credit, requests for funds are wired to your bank in minutes
You can use your line of credit whenever needed
Inexpensive when used (low fees)
There are no restrictions in place or collateral required
No personal guarantee is required, either
Financing Solutions is a leading provider of lines of credit
We are a reputable company with an A+ & 5-star rating
You can pay off the line whenever you are ready
The credit line is easy to renew and renews yearly
You have a secured account portal access 24 x 7
A business line of credit is a good funding resource available whenever your company needs it, without the heavy burden of term loan requirements. If you want to see if your small business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.