Small Business Line of Credit
A small business line of credit (LOC) allows a borrower to draw against a lender-specified amount of financing on an as-needed basis. The advantage of a business credit line is that you only pay interest on the funds you actually draw, so you’re not stuck paying interest on capital you don’t have an immediate use for. Here are 2 small business line of credit options to consider:
Traditional Line of Credit:
The traditional line of credit is typically meant for experienced business owners with proven business models. Which makes sense since the credit maximums are sizable, the rates are lower, and the requirements demand higher credit scores and annual revenue reporting. If you’re a business owner taking out a line of credit, you’ll be spending that flexible cash on seasonal business expenses, payroll and other operational costs, insurance against emergencies and for sudden opportunities. In other words, as a capital cushion. It’s there for you when you need it.
Short-Term Line of Credit:
The difference between a short-term line of credit and a traditional line of credit is more or less the same as the difference between your typical short-term loan and conventional bank or longer-term online loan Therefore, a short-term line of credit has a higher interest rate, lower credit maximum, faster turnaround time and looser application requirements. Unlike the traditional line of credit, the short-term line of credit is generally offered by alternative lenders rather than by banks. The point isn’t that one is better or worse, they appeal to different groups of business owners. Those with lower credit scores, smaller annual revenues, or newer businesses might only qualify for a short-term line of credit. And although the short-term line of credit tends to be more expensive, its value lies in giving younger small businesses the opportunity to maintain a flexible pool of capital. A small business line of credit provides flexibility that a regular business loan doesn’t. With a small business line of credit, you can borrow up to $100,000 and pay interest only on the money borrowed. You then draw and repay funds as you wish, as long as you don’t exceed your credit limit. Need to manage cash flow? Buy inventory? Pay for a surprise expense? Then a business line of credit makes sense.
Is a line of credit loan a good fit for my business?
While it’s ideal to have savings to help your business weather storms, the next best thing is to apply for a line of credit. Business credit lines were designed to help you meet short-term cash needs, such as purchasing supplies or additional inventory or covering operating expenses. Essentially, a business line of credit can help small businesses thrive and grow. A business line of credit is a good option to offset fluctuations in working capital when your expenses stay constant. A line of credit will give you access to funds to continue to pay bills on time or purchase additional inventory if needed. The advantage of a line of credit over a regular business loan is that interest is only charged on the funds you actually use. Additionally, your business can draw on the line of credit at any time that you need.