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Business Lines of Credit

What is a business line of credit and how does it work?

The business world often functions in cycles, with ebbs and flows dictating the direction and steps taken by any given company in order to ultimately achieve success. Due to this fact, a company may find itself in the position of having to acquire the services of a lending institution from time to time in order to make sure all of their goals continue to be met; that typically may come in the form of establishing a business line of credit, something that allows a company to continue to operate normally while they wait out a tough period and eventually return to profitability.

So, what exactly is a business line of credit, you may ask? Simply put, it is an arrangement between a bank – or some other type of lending institution – and a company or individual that will establish a loan with a maximum amount of funds that the borrower can then draw upon when needed; they are free to continue to draw upon those funds, so long as they do not exceed the agreed-upon maximum.

This differs from a traditional loan in that not all of the money you have been approved for is taken from the lender up-front; the company only borrows however much they need from the pre-determined amount, and thus only has to reimburse the lender for however much they have taken. This is also typically not a one-time deal; business lines of credit normally remain open, allowing a company to continue to withdraw funds and repay them as often as needed.

Businesses can utilize a business line of credit for a number of different applications, though normally it’s to get the company through a rough patch by funding their basic daily operations, such as purchasing inventory or supplies and meeting payroll obligations for their employees. It’s a common occurrence in the business world to have to lean on outside assistance from time to timee for a multitude of reasons, such as inability to meet payments to vendors or lenders in seasonal slowdowns with sales or contracted work. The business world can be unpredictable and a business line of credit can help many entities ride out the rough patches until things get back on track and their cash flow is reliably re-established again.

In order to successfully run a company, you need a steady source of revenue; maintaining an internal capital fund balance is effective in combating a rainy day brought on by a patch of financial difficulty, but when that isn’t enough – or you just haven’t had the ability or opportunity to do so – a business line of credit is the next best thing. Of course, you don’t have to wait for money woes to establish a line of credit either; in fact, working out an agreement with a bank for one when you have ample savings gives you an advantage when working out the terms of your loan with the lender, as you’re in a much better position to simply walk away when you aren’t in immediate need of extra capital. You can apply for a business line of credit at most any bank or lending institution, and if you don’t happen to need it right at that moment, it’s nonetheless good to have as a back-up in case you run into sudden and unexpected financial difficulties down the road.

However, as versatile and useful as a business line of credit may be, it should never be used in the event of a catastrophic failing of your company or enterprise; it should serve merely as a safety net when you are riding out a brief period of insolvency brought about by a temporary situation, and never as a means of attempting to save a company about to go under.

Another useful aspect of a business line of credit is that they do not come with large fees and interest rates; instead, they feature a lack of fixed payments that are calculated by an adjustable market-based interest rate, and the amount of the loan can often be paid off in full at any time without any early payment penalties. And once you pay off your balance, you don’t incur any additional fees or payments until you borrow from your line of credit again. It makes for a wonderful safety net for any businessman, and you can work out the details of any line of credit with the bank you’re dealing with in order to cater it to your specific financial needs and situation.

A business line of credit can be of great use to any business owner, whether they are starting up a new venture or heading up a seasoned company that has been operating for years. It’s a way of maintaining the day-to-day flow in your workplace should any momentary financial setbacks arise and keeping your mind clear of any distractions that may come from worries about seasonal cash flow issues. Basically, a business line of credit is a win-win situation for any business owner, as it serves as a valuable financial backup resource only when and if you need it…and who wouldn’t want the peace of mind such an arrangement affords an entrepreneur in this day and age?

To learn about the process of acquiring a business line of credit, visit our Frequently Asked Questions page. Ready to apply? Start your application now and get matched with up to $500,000 today!

Prospective Lenders: Alliant Credit Union, Ally Bank, American Express National Bank, Avant Loans, Bank5 Connect, Bank7, Bank of America, Barclays Lending, BBVA Compass Bank, Best Egg, Biz2Credit, BlueVine Capital Inc., BNC Bank, BofI Federal Bank, Capital One Financial Corporation, Chase, CIT Bank, Citizens Bank, Citibank, Consumers Credit Union, Credibility Capital Inc., DealStruck, Discover, First State Bank, Forward Line, FreedomPlus, Fundbox, Funding Circle, iLoan, JP Morgan, Kabbage, Inc., LendingTree, LendingClub, LendingPoint, LightStream, Marcus by Goldman Sachs, Mariner Finance, Marlette Funding LLC., NBKC Bank, On Deck Capital, One Main Financial, Payoff, Inc., PayPal Working Capital, Prosper Marketplace, Inc., Pioneer Credit Company, Quarter Spot, RapidAdvance, Reliant Funding, RocketLoans, RTS Financial, SmartBiz Loans, SnapCap, Sofi, Square Capital, Suntrust, Swift Capital, TD Bank, TIAA Commercial Finance, Triumph Business Capital, Upstart, U.S. Bank and Wells Fargo. List of Preferred Borrowers.
Downloadable Documentation: Term Loan, Term Loan and Line of Credit, Line of Credit Only   Adobe