Fund projects and purchases that drive your business forward.
Every small business face periods of lumpy cash flow. Often, this uncertainty comes on the heels of an unforeseen cost. These expenses could be a whole host of unique reasons — a new large order with high material cost or a broken machine that has production at a standstill.
Any of these can drain your bank account (and then some). It also hinders your growth. It’s tough for any company to turn away customers due to lack of working capital. Securing a credit line for your small business can help you stay prepared to continue growing your business into the future.
Savvy business owners understand that the best-laid plans (or budgets) can fall by the wayside quickly. To stay ahead of the curve, businesses have relied on lines of credit as the fast and convenient option to access funds. Historically, credit lines were limited to those who could afford to wait out the long, arduous underwriting practices of institutional lenders.
BitX Funding helps thousands of small business owners get that flexible funding in the form of a small business line of credit.
Here’s what you need to know about it, and how it can help you weather storms and take advantage of unforeseen opportunities.
Online lenders like us are set up to get you access to the funds your business needs up to a certain limit. This financing tool allows you to draw up to your limit and pay off the balance on a continuous basis. The key feature of this product is flexibility: to draw anytime, to use for any business purpose, and to reuse next time.
A business line of credit (or “LOC”) is a revolving loan that gives business owners access to a fixed amount of money, which they can use day-to-day according to their need for cash.
LOCs are specifically designed to help businesses finance short-term working capital needs, such as:
Secured Credit Lines:
With this type of LOC, a business must pledge assets as collateral to secure the loan. Since a Line of Credit is a short-term liability, lenders will typically ask for short-term assets, such as accounts receivable and inventory. Lenders typically won’t require capital assets, such as real property or equipment, to secure a LOC. If the borrower is unable to repay the loan, the lender will assume the ownership of any collateral and liquidate them to pay off the balance.
Unsecured Credit Lines:
This type of LOC does not require assets as collateral (meaning it’s sometimes a more attractive option to business owners). Still, the lack of collateral means a higher risk to lenders, so to get an unsecured LOC you’ll need stronger credit and a positive business track record. In addition, the interest rates are often slightly higher. Unsecured lines are usually smaller.
What Does The Process Look Like?
The credit line assigned acts as a rainy-day fund for your business needs.
Here’s an example:
Martha’s Gift Baskets receives a $20,000 corporate order, for which material costs are $10,000. Martha thought she’d saved to take on such an order, but she realizes there will be a $5,000 shortfall. Luckily for Martha, she has a $20,000 business line of credit from which she can draw that amount. She pays interest on the amount she withdrew. Once the order is fulfilled and paid, she can choose to continue the installments or pay back the remainder in one go. The $20,000 replenishes and is available for next time.
When you open a line of credit, you’ll receive access to a stated amount of funds to use as needed. You then receive a monthly invoice reflecting the amount of credit you’ve used, along with any interest charges.
Your payment is based on the actual interest accrued on these funds while you use them. Once the funds are repaid, that amount is available when you need it. You’re only charged interest on the amount of the loan you use.
LOC rates and limits are set by lenders and based on your risk grade, your collateral, and any servicing requirements. Your risk grade is judged on factors like the financial success of your business, the state of your business sector in general, your business and personal credit scores, and whether you have collateral.
Most lenders will charge an annual fee for the LOC, in addition to interest charges. If you’re going to need a significant number of loan advances and repayments, transaction fees might apply.
Smaller LOCs (under $100,000) can operate like a credit card account, with advances made by using a credit card or writing checks issued for the account. Accessing the funds can also be deposited directly into the borrower’s account via an ACH deposit.
When you need some money to start, build, or grow your business, you’ll want to know the differences between business loans and business lines of credit. Knowing the differences will help you make the best decision about what is best for you and your company now you need capital. Here are 8 ways in which business loans are different from lines of credit.
1. Business Loans Are One Time Use:
Are used one time whereas a credit line can be used multiple times.
2. “When” You Get a Business Loan it is Different from “When” You Get a Business Line of Credit:
A loan is normally not something you would get until you need it because it’s normally for one specific purpose. A line of credit is something you obtain before you need it. Remember the line of credit, unlike a loan, is not for one specific purpose.
3. With a Business Loan You Have a Monthly Payment:
With a loan you have a monthly payment that, although there are a few exceptions, doesn’t change from month to month and those monthly payments begin right away. Whether you’re using all the money or not your monthly payment does not change. With a line of credit, you only make payments on the amount of money you’ve borrowed so if your balance is zero your payment is zero.
4. The Closing Costs Are Higher for a Business Loan than a Business Line of Credit:
There are always exceptions to every rule, but most loans carry closing costs anywhere from 2-7% whereas lines of credit have very minimal or no closing costs. Cost is an obvious factor in determining loan vs line of credit.
5. Business Loans Carry with them Fixed Terms or Amortization Periods:
Because of this the monthly payments on loans are usually higher than the monthly payments on lines of credit. Think about it like this. If you were to get a loan for $50,000 your monthly payment will likely be $400-700/month more than it would be if you owed $50,000 on a line or lines of credit.
6. Business Loans Are Best for Long-Term:
Loans are usually best for long-term debt that gets paid off over 2 to 6 years. Lines of credit, however, are best for short-term purposes such as financing receivables, marketing, and making payroll. We acknowledge that lines of credit are great for unexpected cash-flow issues but make sure you don’t exhaust your lines of credit on surprises. Use as much of your line of credit for what we call RGA – Revenue Generating Activities.
If you use some of your funds for a marketing initiative (or several of them) then you’ll likely be able to justify the new debt you’ve incurred because you’ve also generated additional revenue and grown your organization.
7. Business Loans Carry Higher Rates:
Business loans have higher interest rates, but they are normally fixed rates. Business lines of credit normally have lower interest rates but are variable. This simply means that if you manage your lines of credit poorly by making late payments or going over the credit line then — from an interest rate perspective — you would have been better off getting a loan. Whereas with a line of credit the rate can get better with good credit management.
8. Business Loans Are Interest-Rate Driven While Business Lines of Credit Are Not:
Loans are usually somewhat interest-rate driven, whereas lines of credit are not as rate-sensitive. With a line of credit, that is used primarily for short-term purposes, it’s more important to have a monthly payment that is “cash-flow friendly” and, even though the rates are normally quite good, it’s more important that the line can be used repeatedly and the monthly payment is as low as possible in relation to the balance. The various products, lenders, guidelines, and constantly changing standards have made the credit and lending landscape for small businesses a rather delicate, perilous, and formidable one.
1. Traditional Secured
Secured lines of credit rely on collateral. That is, you would put up something of value, such as business assets or real estate, as a guarantee. This guarantee means that the lending institution knows that if you default on repayment, they can claim your collateral to repay what you owe.
A secured line of credit may have better overall terms because the risk is lower. The interest rate might also be lower, repayment terms more flexible, and you may also qualify for a higher line of credit.
2. Traditional Unsecured
Unsecured lines of credit don’t need collateral, so you won’t have to tie up any of your assets. You might also have a quicker approval time. Interest rates are often higher than secured lines of credit, and there might also be a maintenance fee that applies monthly or annually. Think of this method is as simply a personal guarantee to the online lenders.
The SBA suggests that unsecured lines of credit might be better products than secured. They rely more on creditworthiness than years in operation, and the application process is often much less of a hassle.
3. Real Estate Line of Credit
If you’re in real estate or want to be, there’s another product for you to think about. A real estate line of credit is similar to a personal HELOC or home equity line of credit, which is a loan that’s based on how much equity you have in a piece of real estate.
For business purposes, you can use the equity in your own home or the equity in other properties that you own to secure the loan. But there’s another option.
Real estate lines of credit come in two forms – secured and unsecured. For an unsecured real estate line of credit, the SBA explains that your FICO score is the determining factor. This allows you to buy and flip houses, staying active in the market instead of having to wait until one property sells to buy the next.
4. Business Credit Card
Online lenders offer another unsecured option. The SBA recommends the business credit card. This form of credit line is already nearly identical to a 0% Business credit card, but this choice has a few other perks. The main benefit is that with a credit card, nothing that you own, either for the business or personally, is tied up.
You also get quick access to cash, which is great when a line of credit might take days to transfer funds. Your payment terms are flexible too, compared to lines of credit that have set monthly payment amounts.
The Benefits of a Business Line of Credit
There are certain advantages that come with opening a business line of credit over more traditional forms of financing. Some include:
Greater control. With a business line of credit, you can use the funds however you see fit: for ongoing operating costs, to cover gaps in cash flow, or take advantage of unforeseen opportunities or challenges. You don’t need to have a specific use case outlined to secure the cash.
Better flexibility. Unlike a term loan, where you take a lump sum of cash and have to make regular payments, a small business line of credit online can be utilized as needed. You repay as you use the funds, and only pay interest on funds drawn.
Affordability. A line of credit typically has a lower interest rate than short-term loans of comparable size. Of course, rates and terms vary depending on your credit score, annual revenue, and other financial factors.
Easier approval. Some financial institutions accept those with bad credit (note: your rates and terms may not be ideal). This makes a line of credit a solid alternative when you can’t get a traditional loan. It’s also an excellent way to improve your credit score (if used responsibly).
With such clear advantages, it’s easy to see how any business can benefit from obtaining a line of credit. If you can use it strategically and carefully, this type of funding can help you fill short-term finance needs.
Business Line of Credit vs. Credit Card: What’s the Difference?
Although business lines of credit and business credit cards are both forms of “revolving” credit, there are a few important differences you should be aware of:
A business line of credit commonly known as L.O.C., it is usually a revolving loan that permits access to a fixed amount of capital that could be utilized for the short-term business needs.
Once you have qualified for a business line of credit you can use the capital to fulfill all the urgent business needs. It adorns the business with the necessary finances to address business needs right away without any hassle.
L.O.C. aka business Line of Credit facilitates you for the following,
● Purchasing inventory
● Repairing your business equipment
● To rent out extra space for the employees
● Financing a marketing campaign
No, you cannot use a startup business line of credit for personal expenses. The reason is obvious, you are starting a new small business, which makes you accountable for the legal entities business decisions, rest assured a business line of credit can only be acquired for your company.
Here is why you cannot opt business line of credit for personal expenses:
● Legal Consequences- Using a business line of credit for personal expenses could make your startup business endangered regarding business liabilities.
● Tax Implications- It could entangle you with disastrous tax-complications as interest liability on a business line of credit is tax-deductible because of small business expenses. In contrast to it, interest paid on personal lines of credit is not tax-deductible.
● Misuse of Money Hinders Future Funding- If your small business falls for being a suspect of using a business line of credit for personal expenses could withdraw you from being approved for future funding.
So now that you have received a business line of credit (L.O.C.) you can begin to build credit under the company’s name or federal ID number. It does not appear on your credit reports in terms of a new account, credit utilization or part of your personal debt ratio. As you spend and payback your building a PAYDEX score for the company and other lenders will take notice.
If you borrow a high percentage of the business line of credit, it will not increase your utilization rate. The company credit health can be dinged with late payments so pay on time. Most business lines of credit do not report to your personal credit report but double check when applying.
Once you have acquired business credit for your small business, now your next step would be to build strong business credit.
Firstly, establish the business line of credit by paying attention to how you pay your bills and make sure you pay on time. Payment information on your business credit report is detailed compared to your personal credit report. You can build your business credit score quickly if you pay the bills faster and on time.
Secondly, forge your business relationships with more than one lender. Banks are unpredictable as they are more likely to change their lending policies on a moment’s notice. So, beware of putting all your financial eggs in one basket.
A business line of credit is undoubtedly secured to grease your business to keep going, the following considerations are better to comprehend if you really want to increase your business line of credit.
Requesting to enhance the business line of credit, the business likely has to offer additional collateral to the bank. This surely extends your business and it lessens the risk to acquire. Additional collateral could engulf real estate, inventories, equipment, or account receivables.
The loan would be effectively easy and convenient to ask for if it is further secured with a guarantee of the business owners. A guarantor is liable to the pending dues or payments if a business fails to pay in time. Adding a guarantor to the loan could adorn your application with an increase in the line of credit.
● Financial Statements
If your small business possesses strong financial statements in the past, then there are increased chances to get your business approved. The longer your business has been operating, the wider the chance to the approval chances of getting an increased business line of credit.
Well, it entirely depends upon your business needs and financial situation. If you are in the need of money to jump start your business needs a business line of credit is preferable because you get qualified within a matter of days. But whereas business loans could be accessed after a long process, and if you want to go for a big investment then business loans could be a good option for you.
● Finance businesses for long periods of time
● Fixed interest rate
● Bears closing costs such as underwriting and appraisal fees
Business Lines of Credits
● Potentially lower interest rates
● The penalty of interest rate spikes up if you are late
● Potentially unpredictable payments make financial planning difficult.
● Shorter repayment terms
Usually, we know why the business line of credit is quite significant. But when it comes to securing the best business line of credit then the ideal one provides you the ease of applying and having it.
You can rely on BitX Funding for a secured and authentic way of having the best business line of credit whether for your startup or small business
With BitX funding, you can acquire a business line of credit as high as $200,000, you do not have to wait long to acquire a business line of credit. With limited conditions and no hidden interests, BitX Funding business line of credit ranges from $5,000 - $100,000 (Estimated loan depends on your personal credit score 600 >). But evaluate your business needs before applying for a startup business line of credit.
To qualify for business line of credit, it is pretty much easy and convenient, and you just must follow the below ones to get a business line of credit,
● Current Debt Liabilities- If there are any pending debt liabilities then there is a chance of withdrawal from the application process
● Collateral- If there is any collateral withholding your application process then it is become easier to qualify for a business line of credit
● Annual Revenue- The higher the annual revenue of your small business, the greater the chances of securing a business line of credit.
● Personal Credit Score- Your personal credit score can influence your application whether it could qualify or not. Generally, the lenders keep an eye on both business and personal credit scores. This assists them to understand your business’s financial situation, and whether you are reliable in repaying debts or not.
A business line of credit differs a lot from a conventional term loan that prompts to be repaid in a limited duration of time and this type of loan is usually a one-time lump sum of cash beforehand.
Line of credit facilitates you to reuse and repay the acquired amount, from time to time and you could repay often according to your apparent finances. If you make payments on time and you are not exceeding your pre-defined credit limit, you are good to go.
Well, we suggest you repay your business line of credit early to save the initial interest costs. Business lines of Credit limit with low credit limits are considered as unsecured, as it does not draw any collateral prior to your business line of credit application.
It is utterly substantial to separate your business credit and personal credit, as your history could affect your business drastically.
BitX has found some concerns which should be looked upon before you proceed, skim through the following.
● In case you are dealing as a sole proprietor then there is an increased chance that your personal credit could impact on your business matters.
● If you are inquired about your Social Security Number while applying for a credit card or a lease, then your personal credit would be reviewed.
However, it is rarely seen that business credit scores influence your personal credit scores and ratings.
To get approved for an Instant business line of credit, get yourself ready for the following documentation:
● Personal and business tax returns
● Bank account information
● Business financial statements (profit-and-loss statements) and you will be acquiring a balance sheet as well.
At minimum instant business line of credit is approved when your business has over $100,000 in annual revenue to stand out for an instant business line of credit. Larger lines of credit are secured business line of credit because you might need to imply
Most traditional lenders, such as banks, require businesses to have strong revenue and at least a few years of history to qualify for a line of credit. Larger lines of credit may require collateral, which can be seized by the lender if you fail to make payments.
To apply for a small business line of credit, you can apply with BitX with the ease of availing the funds in as few as 24 hours. BitX is familiar with the quick funding solutions for your small business.
BitX is continuously striving to assist the business owners with the seamless cash flow to fulfill their small business needs, a quick way of providing you with the flexibility to manage your finances rather than applying for a lump sum amount, seems a perfect option for your small business.
How to get business lines of credit with BitX:
1. Apply online – Fill out the simple application form with your basic information.
2. Avoid being in the long run – Our loan specialist will respond to you with a suitable loan offer tailored according to your small business needs.
3. Choose the offer you want
4. Receive funds in as little as 24 hours
If you are a newbie in business and you are in search of money to quickly finance your business needs, then make a step forward and apply for the BitX business line of credit. BitX helps you to manage your money with maximum efficacy,
● A credit score of more than 600
● A business that has been functioning for 1 year or more
● A yearly revenue of $100k minimum
To secure business line of credit, you need to get through it very quickly; following are the business line of credit requirements you need to know:
● Personal credit score: Ideally 600 or might be higher.
● Annual Revenue: $100K or higher.
● Time in business: Ideally 6 months or more.
● Collateral: To have a secured business line of credit.
● Debt History: To determine if you could afford to pay back the fast business line of credit.
BitX Funding is your online marketplace for small business loans. From SBA, start-up lines of credit, short-term loans, mid-term loans, invoice financing to merchant cash advances and lines of credit, BitX Funding is where lenders compete for your business. Our top-rated lenders focus on real-life business data and cash flow, which means you can qualify for a loan even if your credit score isn’t perfect. What differentiates us from the competition is that with a brief questionnaire our highly trained loan consultant will listen to your needs and match you with the appropriate funding. This is a personal guarantee. You can go at it alone and spend hours online trying to find funding for your business or you can have a one stop experience with BitX Funding and our direct connection with the lenders.