Line of Credit

Using a Line of Credit to Create a Safety Net for Short-Term Business Needs

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Funding Amount

$20,000 to $1,500,000

Payment Terms

Revolving

You Get Funds

2 weeks

What Is A Line Of Credit

A line of credit is a revolving loan that allows a business to access a fixed amount of capital on a flexible schedule. It can be a valuable tool for businesses that need more cash to cover expenses like day-to-day working capital needs, short-term financial necessities, or unforeseen emergencies. With a line of credit, you can withdraw from the cash balance when you need it, as frequently as you need it until the balance has been depleted. For many businesses, a line of credit works as a buffer, providing peace of mind that business expenses will be paid.

How Does A Line Of Credit Work?

When you open up a line of credit, your business will receive access to a stated amount of funds to use as needed. Unlike other types of loans that may provide a lump-sum upfront, a line of credit provides you with a cash account buffer that you can pull from. This means that it is entirely up to you on how much and when you want to make your withdrawals. You could choose to pull out little chunks here and there or make a few larger lump-sum withdrawals depending on what the cash is needed for.

Unlike a term loan, you will only pay interest for any funds that you use as you use them. Your payment will be based on the amount borrowed, plus the interest on these funds. The payment schedule is defined in your initial line of credit agreement.

Depending on your lender, the line of credit may also come with an annual fee or transaction fees depending on how frequently you access the LOC.

Why Choose A Line Of Credit Agreement?

A business should consider a line of credit agreement if they regularly require access to additional funding to meet short-term capital needs. Reasons to choose a line of credit include:

You need to purchase inventory.
You need to repair equipment critical to the business.
You need to finance a marketing campaign to expand sales.
You need to bridge the gap between seasonal cash flow.
You need to cover expenses while waiting for a client to make an invoice payment.
You need to make gradual changes to how your business operates.

A line of credit provides businesses with the flexibility to manage cash flow and expenses while creating a safety net for short-term working capital needs. It gives you peace of mind that you will be able to cover your expenses, expand as needed, or bridge the gap during slow business seasons.

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How Much Can Be Borrowed With A Line Of Credit?

The amount that you can borrow with a line of credit is between $20,000 and $1,500,000 million. The actual amount that you are approved for is determined by your business’ financial situation and your credentials. For a successful application, you will need:

A credit score of at least 620.
A business that has been established for a minimum of 2-years.
Monthly revenue of $20,000.

You may also be required to discuss the specifics about your business’ financial position with the lender and demonstrate that your business is profitable. You may need to show that you can generate additional revenue when needed and that you have a plan to cover the periodic payments + interest when you borrow money from the line of credit.

What Criteria Is Needed to Qualify?

To qualify for a Line of Credit, you will need to meet the following criteria.

Credit Score

620

Time In Business

2 years

Monthly Revenue

$20,000

When Do the Funds Become Available?

It can take up to 2-weeks before your line of credit becomes available to you. Once it is available and you have access, you will be able to withdraw from it when needed, as frequently as needed.

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What Are The Payment Terms?

The payment terms for borrowed money on a line of credit are classified as revolving. This means that you must pay back the amount you have withdrawn within a set time frame. In some cases, this is immediately and in others, this is over a period of time that has been defined at the time of your successful application. The repayment terms - how long you have to pay back the withdrawn amount - begins as soon as you withdraw. Once the balance is paid back, you are able to withdraw up to the full amount again.

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