If you are in the midst of starting your own business, it is likely that funding has crossed your mind. One way to get access to funds for your business without having to go through a bank, is by taking out a line of credit with another company. In this article, we will discuss what a line of credit is and how it can benefit your business!

What is a Line of Credit?

A line of credit is an agreement between the borrower and lender that allows for multiple loans over extended periods. The terms are laid out in advance, which means you know exactly how much money to expect at any given time. With this kind of loan, there’s no need to reapply every time you want more funds! Each transaction has its own interest rate, so it varies depending on what your business needs are throughout each month/year, etc., allowing your financial situation to remain flexible during different times. This option may be better than starting up a company checking account if you don’t have enough funds set aside for all aspects of running your business (i.e.:) or do not plan to use the funds regularly.

A business line of credit has many benefits, including flexibility and convenience. The funds can be used for anything that your business needs to function properly (i.e.:) payroll, marketing or purchasing inventory, etc., allowing you more autonomy than other forms of loans which may require the money to be spent only on certain items.

Other Types of Loans

If a line of credit is not right for your business, there are other types of financing available to help grow it! Although this article focuses mainly on lines of credits as they pertain to businesses if you’re starting up a company with limited funding options, a personal loan from banks or even an alternative lender like BlueVine might work better for you! Whatever route you decide to go down when looking at potential lenders, it’s important to do your research and ensure that you pick one out who will meet the needs of your business.

These are just some of the things to consider if funding is having trouble coming together for your company. While taking on debt can be difficult, sometimes it may be necessary in order to get started! When done correctly, lines of credit can give you a flexible source of funds that allow you more time than other types of loans might otherwise permit\. Also keep in mind that there are many different ways banks finance their customers which include revolving accounts (i.e.:) cash advances etc., so make sure to read up before choosing what best fits your business!

What about Lines Of Credit For Personal Use?

Lines of credit are also available for personal use which can be a great way to help expand your buying power! If you’re looking to finance a purchase, whether it is an appliance or even going on vacation, a line of credit can allow you the freedom and flexibility that other types of loans cannot.

A Business Line of Credit vs. a Business Term Loan 

A line of credit and a term loan are considerably different from the standpoint of a lender (both traditional lenders like banks and online lenders offer business credit lines). When a lender examines your creditworthiness for a term loan, for example, they are looking at the credit profile of a firm to make a judgment on a loan today. For a line of credit, they are looking at a company’s credit performance today in order to make judgments about the company’s creditworthiness when it accesses the credit line in the future.

The distinction between a term loan and a line of credit does not end there. A term loan entails a set amount of money that is given to the company in one lump sum once the loan is approved. Periodic payments are often repaid in a preset schedule of payments over a defined length of time, or term, until the balance is paid in full. 

A business line of credit comes with additional freedom that a small company loan does not. A line of credit (LOC) is essentially a credit limit that a company can borrow against anytime they need it, repay, and use again—usually for a set period of time. Most lenders ask that the LOC balance be zeroed out at some point during the credit line’s tenure.

What Is a LOC and How Does It Work? 

When you obtain a business line of credit, you provide your company access to a specific amount of money that it can spend as needed. Any interest costs will be included in a monthly statement that shows the amount of credit used (unlike a term loan, you only pay interest for the funds you use as you use them). 

As previously stated, your payment and interest are determined by the funds you utilize. The credit limit becomes available once the debt is paid off, and you can use it whenever you like. Depending on the lender, the repayment schedule for a line of credit will differ. Payments are often made on a weekly or monthly basis.

Whether you need a business line of credit for your company or not, we hope this information has been helpful. If you have any questions about the process, please reach out to our team! We’ll be happy to walk through all the steps with you and answer any questions that may come up along the way.