Want Flexibility? Then You Want a Small Business Line of Credit.
It’s there when you need it, and the best part – you only pay interest on what you draw. A business line of credit is a safeguard, with no obligation to use it. Tap into the funds when you need them, and pay back early to save on interest.
What is a Business Line of Credit?
A line of credit (LOC) for your business gives you access to a pool of funds to draw from when a business owner needs capital. Unlike a traditional business loan, you have the flexibility to borrow up to a set amount (typically anywhere from $50,000 to $500,000), repaying only the amount you withdraw, with interest. You can draw on your small business line of credit to handle cash flow gaps, get more working capital, meet payroll, purchase inventory or materials, or address almost any other emergency or opportunity.
Is a business line of credit right for you?
A small business line of credit is one of the best products for small business owners who want flexibility and the option to be able to draw the funds when they need it. Upwise offers a secured and unsecured line of credit. Unsecured lines of credit are not attached to any assets. A secured line of credit is secured by assets such as accounts receivables, invoices, or equipment.
We’ll go over how a business line of credit works, the costs, the business line of credit requirements, the use of proceeds, and how to get a business line of credit, to help you determine if this type of financing is the best option for your small business.
Business Line of Credit Details
$5K - $500K
6 Months - 2 Years
7% - 25%
As Fast As Same Day
Line of Credit Pros vs Cons
PROS
- Weekly & Monthly Payments
- Only Pay Interest on the Funds you Draw
- Capital is Available Whenever You Need It
- Suitable for a wide range of business purposes
- Excellent Way to Help Build Your Credit Score
- Save on Interest by Paying Back Early
CONS
- May Need to Provide Updated Documents Before Each Draw
- Higher Rates for Lower Credit Scores
- Can Require Collateral or Personal Guarantee
- Must have 1+ Years in Business
- No More Than 3 Negative Days in your Bank Account
- Lower Approval Amounts When Compared to Other Products
How Does a Business Line of Credit Work?
What exactly is a business line of credit?
Simply put, a funder gives you access to a specific amount of financing set by a credit limit, which you can draw from whenever your business needs the funds. It allows access to capital at your fingertips when you need it. First, log into your small business line of credit assigned portal, then click and draw funds, it is that easy!
However, you don’t make payments or incur any interest until you actually tap into those funds and draw them. You only pay for what you use, therefore you are only charged interest while using the funds. If you pay the borrowed money back early, you can save drastically on the interest with early pre-payment discounts.
Business lines of credit can come secured—backed by collateral like inventory, accounts receivable, and so on—or unsecured, backed only by your personal guarantee. In some cases, a line of credit funder will file a UCC against the business while you are using the funds. Read more below to find out how to get a business line of credit.
An Example of a Line of Credit
This sort of financing often gets referred to as “revolving” credit because you can tap into your credit limit over and over again. And when you repay what you’ve spent, you can continue to draw capital from your line of credit. Therefore, you will have access to funds in the future when needed. The best line of credit funders will increase the credit limit as you build payment history with that funder.
For instance, say you’re given access to a $50K small business line of credit.
Now you only need $30k to purchase some inventory for your business, so you draw out the $30k, keeping the other $20K in the pool of available funds.
Once you pay back the $30K borrowed plus interest, you’ll have the full $50K again at your fingertips, without having to go through the application process and apply for another loan. You have the flexibility to pull on that $20K anytime needed in the future. Each draw is considered separate and treated as its own separate payment schedule.
Pay Back Early for Interest Savings
Remember you are only charged interest as you are using the funds, so you are also eligible for huge savings on interest, for paying the line of credit back early. At each draw, you will get an amortization schedule, which will show you the cost of the funds you draw, over the course of each month of the term. Many business owners use it for short-term bridge capital when an opportunity or something unexpected arises.
For Example: Let’s say you have a 12-month term, which comes in a 12% interest rate. For simplicity purposes, each month the funder is charging you 1% for using the money. If you pay the line of credit off within just 3 months, you will not end up paying the full interest and would pay 3% for using the funds for 3 months.
The time and energy you save are some of the biggest benefits. You will have access to your Upwise line of credit whenever you need financing in the future. Your credit limit can be increased based on payment history and underwriting evaluation.
Who Qualifies for a Business Line of Credit?
A business line of credit is based on the monthly revenue and business owners credit score. Newer, less established businesses might be able to qualify, even with a short time in business. Medium-term lines of credit are more for businesses with good credit and a solid financial history. To qualify with Upwise, you only need 4 months of business history. If you are looking for a larger dollar amount, please ask one of our funding specialists about adding collateral or securing the line of credit with invoices or account receivables.
The maximum credit limit amount, introductory term of the credit line, and repayment terms depend on your business’s revenues, credit rating, tradeline history, time in business, and other factors. See below the business line of credit requirements.
Business Line of Credit Requirements
Over $175K
Over 500+
1 Year +
Any
* Note: These business line of credit requirements are based on previous Upwise customers and is just an average.
What Does a Line of Credit Cost?
The basic cost of a small business line of credit is completely straightforward. Simply put, if you draw from the line, then you pay back the amount drawn plus interest. The interest rate is charged on a monthly basis, so whatever your balance is at the end of the month, that is what you’ll be charged interest on. People always ask, what are the business line of credit rates? The business line of credit rates can vary based on whether the credit line is a secured line of credit or an unsecured line of credit. Typically, both are based on your personal credit score and average monthly revenue so the rates may vary.
An Example of Withdrawing Funds & Paying It Back
Let’s say a construction company receives a large job and does not have the funds to purchase materials for the upcoming job and cover payroll. The owner calculates that he needs $50k to cover the material for the new large job and payroll.
For this example, let’s say that a $50k cushion would prevent issues like this from happening in the future. As the business owner, you know your construction job will be paid within 90 days.
So you reach out to Upwise Capital and apply to open a small business line of credit of up to $100K.
Next time you need to purchase materials for a new large job and cover payroll, you can draw funds to cover your expenses. You will have access to the $100k business line of credit anytime you need it in the future. If you pull out $50k for materials and cover payroll, then pay the funds back within 90 days when you get paid from your customer, you will only be charged interest while you are using the funds. The Upwise line of credit offers flexibility and peace of mind, that funds will be available in case you need them in the future or today.
How to get a Business Line of Credit
We make it easy, simply apply online and we’ll be in touch to go over your options.
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Documents You'll Need to Apply
- Completed Application
- Driver’s License
- Voided Business Check
- Business Bank Statements (Last 6 Months)
- Credit Score
You may also be requested to provide the following for larger dollar amounts over $100K or if a secured line of credit:
- Balance sheet
- Profit & Loss Statements
- Business Tax Returns
- Personal Tax Returns
- Account Receivables Report (if securing AR)
- Inventory List (if securing inventory)
*See above for business line of credit requirements.
Lines of Credit
A single accident could set back your business growth a long way if you’re not prepared. But how can you expect the unexpected when it comes to your business? By failing to prepare, you are preparing to fail. So, make sure you’re prepared and have access to funds when you need them.
That’s why flexible business financing can be a vital tool for every business owner.