Business Line of Credit – A Loan Designed to Support Small Businesses

A business line of credit is a form of business financing

For small businesses, a business line of credit (also called a merchant cash advance loan or a merchant advance) can be a life-saving lifeline when cash flow problems hit. When unexpected disaster strikes, the cash on hand to handle it can be quite low. In a time of year when tax season is already kicking into high gear, business owners can find themselves turning away customers and lowering profits as they struggle to pay payroll and business debts. With a merchant cash advance loan, cash flow problems are put on hold and trouble-free, comfortable payments can be made to customers at any hour, any day of the week. The sooner the emergency is addressed, the sooner customers can resume their transactions and resume earning profit.

Business that enables entrepreneurs to utilize funds on an as-and-thereof basis and up to the agreed upon amount. Unlike short-term loans that provide a lump sum of cash to an individual borrower, a business line of credit does not put business owners under immediate pressure to make use of all available funds. Business lines of credits can be accessed easily whenever an urgent need for additional funding arises.

aware of both the cost of funds and the level of interest charged

As with any other type of financing, borrowers must be aware of both the cost of funds and the level of interest charged. Most credit histories begin with a good payment history. A business line of credit, therefore, requires a good payment history on all accounts in order to qualify for a competitive rate. If these accounts are regularly used for business expenses, however, the interest rate applied will be higher. To illustrate, if the company receives a large amount of invoices each month, it will probably require a higher interest rate than the rate applied to accounts that have a lower balance. Likewise, if the amount to be repaid each month is relatively small, the repayment amount could be greater than the amount received each month.

Business Line of Credit (also known as a Business Line of Credit) loans can also be obtained from commercial lending institutions such as banks or credit unions. These organizations offer attractive financing rates, sometimes at preferential rates when compared to banks. These lenders usually require collateral to secure a loan. Common collateral includes personal real estate, equipment, and inventory, but some lenders may accept other tangible assets as collateral, including equipment and inventory held by the business only. If the business is insolvent, some lenders will allow it to operate using only cash already committed to the business. For this type of lender, a business owner may be required to meet a number of financial obligations before the lender will proceed with a business line of credit.

Private funding sources can also be sought in the case of a business line of credit

Typically, private funding sources require applicants to have either good credit or a business plan that reflects substantial earnings. Private lenders will require the business owner to agree to a written debt and performance measures that are agreed upon between the lender and the borrower.

The Small Business Administration’s Office of Credit Programs offers information and guidance on small business lines of credit. The SBA provides a listing of potential lenders and organizations that offer business lines of credit. Each lender must be certified by the Office of Credit Programs to guarantee the loan’s compliance with applicable federal and state laws. To find a business line of credit, businesses should search the Internet using the phrase “small business lines of credit”. Borrowers can compare business line loan options from a variety of lenders to select the one that best meets their needs.

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