Business Line of Credit
BUSINESS LINE OF CREDIT
Business lines of credit are often times the best type of financing if you have a credit score of 560 or higher. The credit line gives you capital to draw upon to meet a variety of business needs. It’s sort of a financial cushion for a fixed amount that you can exercise anytime to meet a current cash flow gap.
The advantage of a business line of credit is that generally you are not required to use the funds until needed and you are only charged interest when it is used and as you pay the line down you also eliminate the interest charged.
QUICK FACTS AND REQUIREMENTS
Loan Amount
$1,000-500,000
Loan Term
1-2 Year Maturity Date
Payment Frequency
Monthly
Interest Rate
8% – 24%
Time to Funds
1 – 4 weeks
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BENEFITS & DRAWBACKS
Only pay interest on funds are drawn
Credit is available when you need it
It is suitable for the majority of business needs May require collateral in some cases
Higher interest rates if you have a low credit score
There is a personal guarantee
WHAT IS A BUSINESS LINE OF CREDIT?
A line of credit is an amount of money provided by a lender, which an individual can spend at will, either by credit or check, provided they pay some amount back each month.
Qualifying
Most lenders will require the possession of an open bank account. Some businesses may be required to prove the financial history of two or more years. And lending institutions will consider the small business’s credit score.
What Types of Businesses is it Good For?
As a small business owner, it is nice to have access to cash when you need it. A business line of credit is very similar to a business credit card. A line of credit is a good option to offset the “ups and downs” with business. This type of financing is meant to provide a helping hand to a solid business with a proven ability to repay the loan.
What are the Minimum Requirements?
Generally, most small businesses can qualify for a business line of credit if they have a credit score of 560 or higher. You will need to show your tenure in business and provide collateral to back the loan.
How Much Will a Line of Credit Cost?
Business Line of Credit Loan CalculatorLine of credit interest rates ranges from eight to twenty-four percent. The higher your credit score the better your rate will be. A traditional line of credit with a rate as low as prime+ can be obtained with a 680+ credit. If your credit is challenged at the moment then a non-traditional loan can give you a good option with higher rates.
ACCOUNTS RECEIVABLE FINANCING
A/R (accounts receivable) financing, also referred to as factoring, allows the business owner to receive capital in the event you are owed money for services completed.
If your small business is in a crunch because your services are provided and payment is not collected for 30 days or more after the work is completed, there are financial factoring companies that can help. The companies will take a look at your clientele who is owing to you money and depending on their credibility the financial company will advance funds and then collect the funds from your client to pay the advance off. This can be optimal because the focus is on the business that owes the receivable and not the company receiving the advance.
QUICK FACTS AND REQUIREMENTS
Loan Amount
Advance Up to 90% of Invoice
Loan Term
1 – 3 Years
Factor Rate
As Low As 1.5%
Time to Funds
As Little As 48 Hrs
BENEFITS & DRAWBACKS
Typically lower factor rates
Time savings for collecting A/R
Doesn’t require any collateral
Customers may prefer to deal directly with you
Financing costs may exceed
WHAT IS ACCOUNTS RECEIVABLE FINANCING?
A/R financing (factoring) is the selling of purchase orders or accounts receivables for cash now. This type of financing allows the business owner to receive capital in the event you are owed money for services completed.
Qualifying
The credit rating of the orderer is key in determining eligibility for this type of loan, not yours. The job or service you’re providing must be fully completed and make sure you have a clear business record.
What Types of Businesses is it Good For?
This type of financing is valuable when a contract for products or services is received, but the business lacks the cash to fulfill on the contract.
What are the Minimum Requirements?
The orderers credit rating is key in determining eligibility for the loan. Personal credit is not usually examined by the lender when determining approval. You need to be invoicing creditworthy businesses for your product or service.
How Much Will A/R Financing Cost?
A/R Financing Loan CalculatorThe rates are generally lower than what you would receive with a cash advance loan or a daily payment loan depending on the strength of the creditor. There also can be an additional cost per invoice fee.