{"id":2600,"date":"2018-07-03T17:56:57","date_gmt":"2018-07-03T14:56:57","guid":{"rendered":"https:\/\/www.lending-express.com\/blog\/?p=2600"},"modified":"2018-07-10T19:09:38","modified_gmt":"2018-07-10T16:09:38","slug":"business-line-of-credit-what-is-it-how-to-apply","status":"publish","type":"post","link":"https:\/\/www.become.co\/blog\/business-line-of-credit-what-is-it-how-to-apply\/","title":{"rendered":"Business Line of Credit: What Is It & How To Apply"},"content":{"rendered":"

What Is a Business Line of Credit and How Can You Apply For One?<\/span><\/h2>\n

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If your small-medium business is in need of a quick funding solution, be it for new equipment, hiring new staff, or purely being in a time of need, a business line of credit could provide the funding solution you\u2019re looking for. <\/span>
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\n<\/span>Used by <\/span>47% of small businesses<\/span><\/a>, a business line of credit is a certain amount of credit that\u2019s made available to a business owner, allowing them to withdraw funds against a predetermined credit limit. Just say the word and with one simple withdraw request to your lender, you can get your hands on additional cash for whatever reason. For businesses that want to avoid traditional bank loans, be it due to the long process, effort or low acceptance levels, a line of credit provides an alternative method that\u2019s less costly than other products, making it ideal for businesses with minimal cash flow.<\/span><\/p>\n

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How Does a Business Line of Credit Work?<\/span><\/h2>\n

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What is \u2018business line of credit\u2019? For those unsure, you\u2019ve come to the right place. Here we\u2019ll take you through everything you need to know\u2026<\/span><\/p>\n

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A business line of credit is very similar to a personal line of credit (think of credit cards or home equity lines of credit). You\u2019ll secure a specific amount of financing – say, $40,000, but you won\u2019t need to make payments or be subject to interest rates until you say the word go and help yourself to the funds. This is why people refer to them as \u201crevolving\u201d, as you can essentially help yourself to funds whenever you want. Via Become<\/span><\/a> you can receive a credit amount of up to $250,000. <\/span>
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\n<\/span>It\u2019s very similar to having a personal credit card, as soon as you’ve paid it off, you can charge more transactions on the card. When it comes to a line of credit for example; if you have a $40,000 line of credit and withdraw $20,000, you still have access to the other $20,000. If you go onto pay back that $20,000 and get the figure back down to $0, you’ll still have access to the entire $40,000 without the need to reapply. <\/span><\/p>\n

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Business lines of credit interest rates<\/b><\/p>\n

Business lines of credit interest rates for a small business are significantly lower than those of a traditional business loan. What\u2019s more, is a business will only pay interest on the amounts they actually use, rather than the entire amount available. <\/span>
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\n<\/span>Once you\u2019ve withdrawn all, or a part of your line of credit, the typical period of time to repay is usually in the realms of 6-12 months. More often than not, you\u2019ll be charged a fixed monthly fee between 1%-10% (an APR equating to a range of 20%-50%). <\/span>
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\n<\/span>It should be known that lines of credit vary depending on your lending source. Here at Become, our lending partners have a fantastic offer whereby <\/span>if you pay early <\/b>(and in some cases even if it\u2019s just one day earlier), you can skip the fees entirely. \u00a0<\/b><\/p>\n

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Business Line of Credit Vs Traditional Loans:<\/span><\/h3>\n

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Though very similar, a business line of credit and traditional financing have a few subtle differences. Many people assume that a line of credit is just another term for a traditional loan, but this is not the case. When it comes to<\/span> traditional business loans<\/span><\/a>, the borrower can only receive an agreed upon amount; if they want access to more funds they’ll need to request another loan. With a line of credit, however, the borrower and lender will pre-agree on a maximum amount that the borrower can have access to, and have the ability to withdraw as they please (just as long as it doesn\u2019t exceed the maximum amount of the line of credit). <\/span><\/p>\n

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With a business line of credit, there\u2019s a cash pool to dip into whenever necessary, meaning borrowers can skip the process of having to apply for a new loan every time funds run dry. This makes them extremely handy should one need funds at a moment\u2019s notice.<\/span><\/p>\n

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Business Line of Credit Vs Traditional Loans: Breakdown<\/b><\/p>\n

\n\n\n\n\n<\/colgroup>\n\n\n\n\n\n\n\n
Variable<\/th>\nBusiness Line of Credit<\/th>\nTraditional \u2018Term\u2019 Loans<\/th>\n<\/tr>\n
Interest rate<\/td>\nTied to the market\u2019s variable
\nrate – typically lower<\/td>\n		Fixed rates – typically higher<\/td>\n<\/tr>\n
Closing cost<\/td>\nTypically lower<\/td>\nTypically higher<\/td>\n<\/tr>\n
Payment structure<\/td>\nVaries month-to-month<\/td>\nSet amounts due each month<\/td>\n<\/tr>\n
Flexibility<\/td>\nHigh<\/td>\nRigid<\/td>\n<\/tr>\n
Best for<\/td>\nShort-term needs<\/td>\nLong-term needs<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

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Keep in mind that despite the interest and closing costs being typically lower, if you\u2019re late for whatever reason with a payment, or if you go over your borrowing limit, prepare to feel a lenders\u2019 wrath – your interest rate could increase considerably, as opposed to a traditional term loan, where the interest rate will remain the same for the entire loan. <\/span><\/p>\n

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Traditional term loans are best for long-term investments:<\/b><\/p>\n