A Business Line of Credit is a financial tool to compensate for the short-term financial crisis. It gives you access to the revolving cash flow and the flexibility to withdraw the cash whenever you need. Once you have repaid the withdrawn amount, your credit will set back to the previous amount. Besides Banks and Credit Unions, due to the accelerated small businesses and financial crisis, alternative lenders are offering Business Lines of Credit to help owners with business expansions and inventory expenditures.
So, if you hate the meticulous loan application and approval process, we advise to save yourself the trouble of re-applying and apply for Business Lines of Credit (LOC). With an unsecured line of credit, you can even build your business and personal credit score.
$5,000 to $1 Million
6 months to 5 years
Types of Lines of Credit
The line of Credit (LOC) is an inexpensive funding solution for short-term capital needs as compared to a personal loan or credit card. There are two types of LOC: Secured and Unsecured.
Business assets and real estate act as collateral in Secured Lines of Credit. A secured line of credit has a lower interest rate and better terms because it’s less risky.
An unsecured LOC doesn’t require collateral or a personal guarantee. For example, an unsecured line of credit has quick approval time, higher interest rates and a longer loan term.
Would you be comfortable risking your home or valuables in the time of crisis? They don’t want to risk their money; hence, unsecured business loans come with higher rates. Established businesses have enough capital to pay higher interest rates but starts up have to choose between offering collateral or higher interest rates.
Are you eligible for a Line of Credit?
Do you have a credit score of 500+? Have you been running a business for more than a year and are not facing any bankruptcy? If you meet these conditions, you will be eligible for the business line of credit.
The loan range and loan term is dependent on your annual revenue, credit score, financial standing, and credit card history.
Your chances of approval are brighter if you fulfill the following criteria:
• You can get your desired loan amount if your time in business exceeds one year.
• With a fair credit score, more than 630, your chances of loan approval are stellar.
• Generating over $ 180K annual revenue gives a guarantee to your potential lender.
Bid farewell to the traditional loan approval process, and apply for a Business Line of Credit.
Applying for a loan via traditional lenders and Credit Bank Unions can be time-consuming and cognitively straining. Merchant Advisors provides a Business Line of Credit with simpler application terms, flexible payment terms, and fast approval rate.
The wait for loan approval by traditional lenders is unsettling. Expenses and financial crisis don’t wait for anyone so if you need fast funding on flexible terms, apply for a line of credit. Once the lender approves your application, you can withdraw as much money as you need. You pay interest only on the withdrawn amount.
With our simple terms, consistent cash flow and revolving credit, you can get rid of protruding financial problems.
Documents to have in a business folder!
At Merchant Advisors, we don’t believe in discrimination, as business owners with low and poor credit scores are welcome. But we would highly appreciate if you show the following documents to your lender so we can have a glimpse at your credibility.
• Business & Personal Tax Returns
• Balance Sheet
• Driver's License
• Credit Score
• Bank Statements
• Profit & Loss Statements
Diving deep in the mechanics of Business Lines of Credit
Mishaps, while running, and managing a business, are inevitable! There is always a way out of any financial crisis, especially with infinite financing options.
A business line of credit is your way out of any financial insecurity, let’s dissect into it so you will come to a final decision with a clearer mind.
How does a business line of credit work?
In layman terms, a line of credit works like a personal credit card; the only difference is a credit card has a higher interest rate and APR value. As a borrower, you will get the funds till a set credit limit from your bank or an alternative lender.
You pay interest only on the money that you have withdrawn – its most appealing advantage.
If the lender has lent you $20,000, but you only need $5,000; you have the liberty to withdraw the amount you need. A Business Lines of Credit saves you from taking out more loan than you need and later on consuming it on unnecessary projects.
Once the lender approves your application, he will issue a ‘draw period’ – a timeline in which you can draw money, usually it lasts for a couple of years depending on your lender’s criteria. For this, the lending company will give you separate credit cards. The interest starts to accumulate once you have taken out the cash.
To keep the credit revolving, make small payments on time. So, once you run out of the loan, it can be available to you again.
A hypothetical example to understand Lines of Credit
Let’s say due to a couple of ill decisions you have landed yourself in financial jeopardy. You apply for a Line of Credit and lender offers $100,000. Now you only require $50,000, a Line of Credit allows you to withdraw the amount you need, not the whole lent amount. Now that you have utilized half of the loan, interest in applicable on the used amount.
With the flexible terms of a Line of Credit, you can withdraw the remaining amount, make complete payments, and get the lenders-approved money back into your account.
What goodwill a Business Line of Credit will brings to my business?
The dream of every small business owner is to see his/her business grow and earn more profit every year, and a small business line of credit can act as a bridge between lack of funds and unavoidable expenses such as payroll and inventory purchase.
It can help cover up small-term business needs, even if you are oblivious to the exact loan amount, the flexible terms of a Line of Credit can help eliminate the factor of risk.
So, if you need funds for inventory purchase, to invest in future projects, to carry out daily operations, or to remodel, you can take aid from a business line of credit.
Improve your credit score by using a Line of Credit
Since you are applying for a loan, you must know the importance of a 'fair' credit score. Most alternative and traditional lenders demand a fixed figure as a credit score.
Once you get approved to a line of credit, your current LOC account will appear as the new account in your credit report. And if you have not withdrawn a considerable amount, the utilization rate would be lower, and this improves your credit score.
Carefully draw the funds, keeping in mind the utilization rate and current credit score.
Pros and Cons of A Business Line of Credit
A Business Line of Credit gives 24/7 access to funds to borrowers. Show the relevant documents to the potential lender, and withdraw as much as you need.
Lines of Credit is a remarkable opportunity to improve credit score. Businesses with a bad credit score are welcome to apply, but they have to pay collateral and face higher interest rates.
Lines of Credit vs. Business Credit Cards
Despite some considerable differences between the Line of Credit and Business Credit card, there is a common ground between the two!
The credit card has a higher interest rate and fee as compared to the business line of credit. The loan amount varies from loan to loan.
Moreover, a business credit card requires collateral; with an Unsecured Line of Credit, you don't have to sacrifice an asset.
Revolving Line of Credit vs. Non-revolving Line of Credit
It is self-explanatory from the title itself. Revolving credit gives you access to funds, again, once you have repaid the amount. On the other hand, you are unable to reuse the funds from the non-revolving line of credit, but it comes with low interest and APR rate.
So, pick the one that suits your business needs.
Business Line of Credit vs. Installment Loan
A Business LOC works at the revolving credit; you can take as much money as you want to fulfill your financial need by keeping the limit in mind. The main objective is, to cover short-term financial problems, an installment loan can cover long-term expenses.
Plus, the installment loans have a longer loan term.
Business Lines of Credit vs. SBA Loans
Although the loan amount, availability, and interest rate are on the same level, there is a significant difference between the two. An SBA loan is government-approved; hence, they follow a tedious approval and funding process, unlike the line of credit. The main difference is the unavailability of the revolving credit.
Have a clear picture regarding the needs and financial obstacles your business is facing so you can choose the one that satisfies your needs the best.
Points to consider before applying for a Business Line of Credit
Before stepping in the whole ceremony of business loans, ask yourself why you need the loan.
Try to highlight the underlying issue so that you can use the funds to drive your business in the right direction.
An expert’s advice can go a long way, contact our financial experts so that you can pick and choose with ease.
Is a Business Line of Credit the best option?
Unsecured Business Line of Credit is an expensive business funding option; one needs to make repayments on time and failure to do so, will result in a huge dip in the credit card.
So, if your business is not generating enough profit and you are having trouble sustaining the payment terms, maybe secured business line of credit is the better option for you.
In addition to this, don’t jump in without considering all of the options. If LOC’s rates are higher than your grasp, be patient, a more suited option are right around the corner.
When should you use a Line of Credit?
If everyday expenses are pending, such as payroll, equipment upgrading, and inventory purchase, the revolving credit from a line of credit can help you carry out circadian tasks.
In addition to this, if you need money to pay off any previous debt, the funds from the cash flow can help. It is recommended to invest money in new projects to ensure the possibility of an increase in annual revenue and profit.
A line of credit works perfectly well for the business owner who is unsure regarding the exact time of money withdrawal. You can handle the money on your terms.
But if there is any discrepancy in the payments, then you will be responsible for the downfall of your credit score.
Merchant Advisors will help you make a sound decision by keeping all of the factors in mind.
Why is Merchant Advisors the best?
We've learned a lot by working with thousands of small business owners like yourself. With Merchant Advisors, you not only get capital for your business, but also get credit resources, affordable prices, renewal benefits, early repayment savings and, best of all, peace of mind.
To get started, fill out a 3 step online loan application, enter your business information, and you will get a decision in a matter of an hour and funding in 24 hours.
Building a solid credit profile is important to gain access to funds at reasonable rates. We help you with your credit by reporting it to the credit bureaus.
You will get an email, immediately, mentioning the current status of your loan. Our expert financial advisors will reach out to you; they work with business owners every day to address emerging financial challenges while running a small business.
We offer discounted fees on loan renewals and low prices exclusively on small business loans for our loyal customers. We are always ready to help now, or anytime in the future.