When running a business, there may come a time when you could use extra funding. Whether it is to buy new equipment, hire new employees, conduct training programs or launch a new product, there is a need for financial resources. Businesses have several options available to them to get the extra funds, each with their own share of pros and cons.
&Solved offers businesses a line of credit option that when compared to other types of funding, like bank loans and Angel Investors, does have a few advantages. Before applying for a line of credit for a business, it is better to understand what exactly a business line of credit is, the requirements and the cons along with the pros. We give you the whole story here.
How does a business line of credit work?
A business itself cannot apply for a line of credit but the founder, director or CEO can apply on its behalf. The applicant needs to provide all the required details to &Solved, after which an assessment will be carried out. The assessment will help determine if you are eligible for a line of credit and up to what amount. The process usually takes up to 24 hours.
Once the application has been approved and the amount fixed, the applicant is eligible to withdraw funds from the business line of credit. The maximum amount that can be withdrawn is pre-fixed depending on several criteria including how the business has been performing over the last two years, loan history, credit score and so on. A minimum amount of $3,000 has to be made during the first withdrawal followed by minimum amounts of $1,000 each. Withdrawals can be made for as long as funds remain in the line of credit or until the duration expires.
The amount that has been withdrawn has to be paid back with interest. Interest is charged only on what has been withdrawn from the line of credit and not the full amount that has been allocated to the applicant. The time duration during which the payments have to be made will be decided when allocating the line of credit. The full amount or minimum amount can be paid by the deadline. Paying the minimum amount only means that interest will continue to be levied on the balance amount until it is paid back in full. There is no penalty for paying back the full amount early.
What is a business line of credit?
A business line of credit is similar to a line of credit but is used for the purpose of running a business. A representative of the business applies for the line of credit, but the amount that is allocated can be used for whatever the business requires or even just to keep a reserve of extra funds in case of an emergency.
Unlike a loan where a lump sum amount is transferred to the recipient’s account, a line of credit holds the funds in reserve. When a withdrawal is made, the required amount is transferred to the recipient’s account within 24 hours.
With a loan, the recipient is required to pay back the full amount with interest in instalments over a period of time. With a line of credit, only the amount that has been withdrawn is charged interest and has to be paid back. The amount that remains in reserve is not charged any interest.
As withdrawn amounts get paid back, the value of the funds in reserve gets reset to its original amount. The recipient can keep drawing on these funds as often and for as long as required provided that it is within the allocated limit and within the set time duration.
When it comes to small business loan alternatives, a business line of credit is one of the most flexible options available. The upper limit is usually less than what you can get with a loan and set at $30,000, but the acquisition procedure is more simplified and much faster.
The Bottom Line
&Solved offers businesses a convenient alternative to a business loan with its line of credit with no hidden costs. Provided that all the paperwork is in order, the business has been well-established over the past two years and shows the ability to pay the credit back, obtaining a business line of credit is a simplified procedure.