Business Line Of Credit
With this type of credit, you can borrow up to a maximum credit limit and only pay interest on the amount of capital that you borrow from your credit line.
Maximum Loan Amount
$10K to over $1 M
6 Months to 5 years
As quick as 1 day
What is a business Line of credit?
A business line of credit is a form of small business funding that provides a pool of funds to draw from when you need capital for business expenses. You can draw on your small business line of credit to easily access capital to handle cash flow gaps, get more working capital, buy inventory, or address an emergency or an opportunity. You’ll only repay what you withdraw, and you’ll do so with an agreed-upon interest rate and repayment term.
- Only pay interest on funds drawn
- Capital is available when needed
- Suitable for a wide range of business purposes
- Bad credit is acceptable
- Excellent way to build your credit score
- Might need to provide updated documents upon each draw
- May require collateral
- Higher rates for lower credit scores
Who Qualifies for Business Lines of Credit?
What types of businesses are eligible for this style flexible financing?
Younger, less established businesses might be able to qualify for short-term lines of credit, whereas medium-term lines of credit are more for businesses with good credit and a solid financial history.
The maximum amount of funding available, introductory duration of the credit line, and repayment terms depend on your business’s revenues, credit rating, history, and other factors.
Most Customers Who Were Approved Had
Time in Business
Over 1 year
How to Apply
A business line of credit application should be a very easy process, depending on the line of credit lender you’re working with. Online business line of credit providers will have quick, streamlined applications, this is due to the use of technology in their underwriting processes. However, traditional banks will have more intensive business line of credit applications.
In general, online business line of credit providers offer smaller, shorter-term options that will come with an easy and fast application process. This is opposed to banks that will offer larger and longer-term options that might require more paperwork and could take slightly longer to fund.
You Will Need These Documents
- Driver’s License
- Voided Business Check
- Bank Statements
- Balance Sheet
- Profit & Loss Statements
- Credit Score
- Business Tax Returns
- Personal Tax Returns
How does a business line of credit work?
The Unexpected will happen—it’s the way life is.
How can you expect the unexpected when it comes to your business? A single accident could set you back a long way if you’re not prepared.
This is why flexible business financing is so important.
And Common Funding helps thousands of small business owners get that flexible funding in the form of a business line of credit.
Here’s what you need to know about a business line of credit—and how it can help you weather the unexpected storms and take advantage of unforeseen opportunities.
Exactly what is a business line of credit?
Simply a business line of credit is pretty similar to a personal line of credit, very much like your credit card.
A bank or lender gives you access to a specific amount of financing, which you can draw from whenever you want or need.
The difference is, you don’t make payments or incur any interest until you actually tap into those funds. Simply stated, you pay for what you use.
Business lines of credit can come secured—backed by collateral like inventory, accounts receivable, and so on—or unsecured, backed by your personal guarantee.
“Revolving” Business Lines of Credit, An Example
This type of financing often gets referred to as “revolving” credit because you can tap into it again and again. When you repay what you’ve spent, you can continue to draw capital from your line of credit.
For example, imagine you’re given access to a $60K small business line of credit.
Next, you decide to take out $40K, keeping the other $20K in the pool of available funds.
Once you pay that $40K, plus interest, back, you’ll have the whole $60K at your fingertips again—without having to apply for another loan.
The time and energy you save is one of the biggest benefits to a business line of credit.
While most business lines of credit are traditional revolving credit products, some will not automatically renew after you’ve fully repaid what you owe. Some non-revolving lenders will require you reapply to renew your line of credit. Assuming you’ve remained in good stead with your lender, reapplying should be an easy process.
Are They Different? Business Lines of Credit vs. Traditional Term Loans.
What sets a business line of credit apart from a traditional term loan?
To begin with, business lines of credit usually come with lower interest rates and closing costs than traditional term loans of similar sizes.
However, if you’re late with a payment or go over your credit limit, that interest rate could spike pretty high.
Good to note that traditional term loans have regular interest rates over the life of the loan, which is a major difference between term loans and business lines of credit.
In comparing a business line of credit with a traditional term loan, keep in mind that lines of credit usually work better for repeated cash flow issues while term loans often make more sense when it comes to specific purchases or one-off business investments. However, that doesn’t mean you can’t or shouldn’t use a business line of credit for business purchases, as well.
Different Types of Business Lines of Credit
Though it’s not an industry standard, we split business lines of credit up into short-term and medium-term.
What’s the reason for that?
Although business lines of credit don’t really have term lengths—you can withdraw and pay back those funds indefinitely, as long as your lender believes that you’re a responsible borrower—these labels help you compare short-term loans with short-term lines of credit and traditional term (or “medium-term”) loans with medium-term lines of credit.
The differences are mostly in their minimum qualifications, maximum fund amounts, and interest rates.
The longest-term lines of credit typically come from a traditional bank. Medium-term lines of credit and short-term lines of credit are typically found with online lenders.
The Benefits of a Business Line of Credit
The major advantage of a business line of credit is its renewability: you can draw out funds, pay them back, and draw again.
You can use a small business line of credit to help finance ongoing operating expenses, cover cash flow gaps, take advantage of unexpected opportunities, and provide a cushion to protect against unexpected emergencies.
Since lines of credit are so flexible, they can also be used for payroll, seasonal expenses, and unforeseen problems or investments, as well as larger purchases.
This flexibility is what makes a business line of credit such a valuable loan product for small business owners.
What is the Difference Between a Business Line of Credit and a Credit Card?
Although business lines of credit and credit cards are both forms of “revolving” credit, there are a few important differences to be aware of:
- Credit cards usually have higher interest rates.
- Credit cards charge additional fees for cash advances and, often, balance transfers.
- Credit cards typically require payments on a monthly basis while business lines of credit usually don’t.
- Lines of credit give you access to cash.
What Will a Business Line of Credit Cost?
The basic cost of a business line of credit is pretty straightforward: when you use, you pay.
Unlike with a traditional term loan, which is one big lump sum with regular repayments, with a business line of credit you’ll only pay interest on the cash you draw.
An Example of Withdrawing and Paying Back Funds
Imagine it’s time to pay the bills, however you’re still waiting to receive payment from your own customers—making it difficult for you to pay what you owe.
Unfortunately, it’s not the first time this has happened.
You calculate that having a financial cushion of some amount—for our example, $25K—would help prevent this problem in the future.
You reach out to an online financial institution and apply to open a small business line of credit of up to $25K.
Next time you need to pay your bills and you’re still waiting on that cash from your customers, you can draw out funds on the business line of credit to cover your debts.
You needed $5K to pay bills, so you pull $5K out of your business line of credit.
And even though you have a $25K line of credit, you’ll only need to pay back the $5K you borrowed, plus any interest.
It’s important to keep in mind that the interest only gets charged on the $5K you borrowed, not the full $25K you have access to.
If your interest rate is 11%, you’ll have to pay back $5,550 (or $5K plus $550 in interest).
Once that’s paid off, you can continue making additional draws up to the $25K maximum, only paying interest on what you’re borrowing at any given time.