At a glance
Remittance Capital Management offers a true business line of credit with monthly payments.
A small business line of credit offers a flexibility and reliability that few funding options can match.
This Program has a flat fee per month that gives you the flexibility to draw down as much as you want when you want and only pay for the time period you use the funding for.
So if you pay the line of credit back in 1 month you only get charged the 1 months fee.
However, while most small business owners are familiar with the term “business line of credit” (or LOC for short), they don’t fully understand what they are and whether or not a line of credit would be of use to them and their business. Nor do they understand how this can be different from a business loan or Term loan.
There are multiple financial products that fall under the business line of credit umbrella, along with a variety of uses, so in this guide, it’s our goal to help you understand the difference.
For starters, there are two main types of business credit lines:
But before we delve into the major difference between each of these and what’s required to apply for both, let’s review how lines of credit work and why they’re useful.
In this guide, we’ll cover:
1. How a small business line of credit works
2. What is a business line of credit good for?
3. How is a business line of credit repaid?
4. Types of business lines of credit
5. How to qualify for a business line of credit
How a small business line of credit works
A business line of credit uses what is called “revolving credit”.
Revolving credit is exactly what it sounds like: once approved,you get access to a revolving balance of credit which you can use for a variety of purposes.
As you pay off the balance, that credit once again becomes available and the process can be repeated over again for the length of the credit line.
For that reason, most line of credit programs work much more similarly to credit cards than traditional loans, which offer a lump sum once and then you’re done.
However, they’re different from credit cards in many ways as well.
With credit cards, you get a preset spending limit.
However, while similar, with a line of credit it’s not so much a preset spending limit as it is a max approval amount.
This gives you the flexibility to draw down as the need arises until you’ve maxed out the line of credit. Typically, with either 6 or 12-month repayment windows.
Once requested, the funds are then either wired or ACH’d directly into your business checking account.
This is different than a credit card since you have to swipe the card with a vendor who accepts credit cards if you want to use the funds. In addition, if you need cash you have to pay hefty fees.
Once maxed out, you can continue repaying and reusing the funds within your line of credit provided you make payments on time and never exceed your credit limit.
Many business owners confuse Business Lines of credit with unsecured loans or merchant advances but they are very different.
With lines of credit you only pay for what you use and keep can the unused funds on reserve for emergency business needs.
As long as the line of credit is open you do not need to go through an more underwriting or submit any more paperwork
This way you have the comfort of knowing you have access to capital with the click of a button without any paperwork or waiting.
What is a business line of credit good for?
Because you can’t pay your rent or payroll with a credit card, combined with the increased difficulty of being approved for a traditional loan from a major bank, if cash runs low, as a small business owner your options are sparse for injecting the business with the cash it needs to keep things running.
A business line of credit is useful because it gives you the flexibility of having a cash equivalent to handle such situations.
For all intents and purposes, having a line of credit is similar to a savings account that you can dip into as needed with the ebbs and flows of your business cycle.
When cash runs low, you can use your line of credit to get the funds you need to maintain daily operations and keep things chugging along. This is invaluable for small businesses where the inability to pay for daily expenses can be a death sentence.
However, a business credit line is great for several other reasons as well. One of the best uses is in expanding your business.
If you’re entering a busy season, expansion period, or sales are just picking up and you need the extra funds to:
- Hire and train new employees
- Buy inventory
- Or renovate your location
- Cash flow
- Working Capital
Then a line of credit can provide you with the funds you need to grow your business without it holding back your daily operations.
The uses are virtually limitless, with a business line of credit having the potential to be used for everything from supplementing cash flow to aiding growth and covering unexpected expenses.
Most Business Owners like having a working capital cushion that they can use without having to actually take a loan. A business line of credit gives you the peace of mind knowing that you have access to capital without having to go through an application process
How is a business line of credit repaid?
With credit cards, you have the option to do minimum payments over the life of the account and accrue interest charges on the outstanding balances.
Generally, these minimum payments are at roughly $25.00 per month or based on a percentage of your outstanding balance.
However, a business line of credit works a bit differently.
According to Nerdwallet.com, business line of credit rates are typically between 1-3% of your outstanding balance along with interest charges and fees.
Business line of credit repayment terms are different as well. Since most lines of credit are based on 6 or 12-month revolving periods, the repayment schedule is set according to the amount drawn down, the cost of funding, and the term.
Unsecured business line of credit rates and repayment terms (Example)
Below is a quick example of how unsecured line of credit rates and repayment terms work.
If you’re approved for a $150,000 unsecured line of credit on a 6 or 12 month term with a monthly fee of 2.75% and you draw down on $30,900.00, your payment schedule will look like this:
This is a typical line of credit schedule for a business with a sub-620 credit score. The above are typical example rates, however, rates can be as low as 1% per month.
Types of business credit lines
Business lines of credit are split between 2 primary types, each with their own unique benefits. Which of the 2 you choose will depend on your business needs.
The 2 types of business credit lines are:
1. Unsecured line of credit: An unsecured line of credit doesn’t require collateral, however, the line of credit is typically smaller along with a higher interest rate when compared to a secured line of credit.
2. Secured line of credit: A secured line of credit is generally available at a cheaper rate, making it the more attractive option for business owners. However, because they’re riskier for lenders, they need to be backed by some sort of asset.
That collateral can be capital such as property, however, it typically comes in the form of inventory, accounts receivable, or something else. If you’re unable to pay back the loan, your lender may seize that collateral to pay the balance.
Figuring out which of the above types of business credit lines is best for you and your business is an important part of the process of applying for a business line of credit.
Before applying, consider various factors such as the state of your business (accounts receivable, etc.) and the forecast for the coming year to decide which would better fit your unique situation.
How to qualify for a business line of credit
So, I know what you’re thinking. This all sounds great– but do I qualify?
Both secured and unsecured business lines of credit require your business to be in good standing.
However, it’s easier than ever to be approved and the minimum requirements allow even young businesses to be approved, provided you’re in good standing (albeit for smaller, shorter-term lines of credit).
Here’s are some basic qualification requirements:
What’s Needed To Qualify for a Business Line of Credit?
Both Secured and Unsecured Business Lines of Credit will require your business to be in good standing.
All lenders typically prefer to work with businesses that are well-established and in good financial standing, thus proving to the ability to pay back the loan. Various financial documents may be requested to support this. Here are some basic qualification requirements:
1. Time in business: At least 1 year
2. Credit score: 540+
3. Annual revenue: $50,000
4. Less than 3 negative occurrences in your bank account in the last 90 days.
Keep in mind that the funding amount, duration of the credit line, and repayment terms all depend on where your business stands in terms of credit rating, history, revenue, and several other factors.
What’s Documents Will be Needed To Qualify for a Business Line of Credit?
Both Secured and Unsecured Business Lines of Credit will require your business to be in good standing.
All lenders typically prefer to work with businesses that are well-established and in good financial standing, thus proving to the ability to pay back the loan. Various financial documents may be requested to support this. Here are some basic qualification requirements:
- Completed application
- Last 4 months of business bank statements
- Or completion of our online application
Once approved, You will have access to your funds electronically via our secure portal.
You will have the ability to draw down as much as you have available electronically and payback whenever you feel like.
Keep in mind Payments will be debited out of your account electronically once a month until the business line of credit is paid in full.
From the flexibility to pull out cash when your business needs it to always having the funds available to invest in growth, a business line of credit allows your business an unrivaled level of flexibility and reliability.
Business Lines of Credit and How They Work
Funding Up To $150,000 / Pay-As-You-Go Repayment Terms
A Business Line of Credit, also known as a “LOC” is a type of loan that provides business owners with access to working capital needed to fix cash flow issues and other fulfill other short-term business needs. There are two main types of Business Lines of Credit: