Business Line of Credit
A business line of credit gives you access to funds up to a set limit, which you can tap into whenever you need to, only paying interest on the amount that you use. The funds are available to you for a specific period of time, within which you can withdraw whatever amount you need.
Every business line of credit lender has different requirements, and each application form will have its own set of questions. Typically, you need to have consistent monthly revenue, a strong credit history, and business activity statements.
For most business loans, you can also expect to provide business registration details, financial, tax and cash flow statements, and balance sheets.
With a business line of credit, you can access anywhere from $5,000 to $1,000,000.
With invoice financing, you can tap into cash from unpaid invoices, using accounts receivable as collateral, which means you get quick access to working capital. A line of credit, on the other hand, is a flexible safety net that lets you access funds as needed, paying interest only on what you use. Invoice finance is more suited to businesses with outstanding invoices, while a line of credit is typically more versatile and adaptable to different financial needs.
A new business can get a line of credit, but it may be more challenging than for more seasoned companies. There are some things you can do to increase your chances—for example, if you own property, you can use it as security. Or, you can start by getting a business credit card and working on improving your financial profile until you're eligible for a line of credit.
A line of credit works similarly to a business credit card—you withdraw funds whenever necessary and only pay interest on what you use. However, credit cards are often unsecured, whereas with a line of credit, you have the option to go for a secured loan. As a result, interest is likely to be lower, and you may end up being able to borrow more money than with a credit card.
A line of credit is a predetermined borrowing amount that you can use, repay, and use again (up to a set limit), while a term loan is a lump sum payment for one-time use, with a fixed repayment schedule.