types of loans / Unsecured Small Business Loans /
Small Business Line of Credit
A line of credit gives you flexibility to take funds and meet your short-term business goals.
How do lines of credit work?
Lines of credit are arrangements between lenders and borrowers that gives a maximum loan balance for the borrower to pull funds from. With a line of credit, you can borrow funds at any time as long as you don't exceed the maximum credit line amount amount. For a small business owner, the largest advantage of a line of credit is the flexibility. You don't have to use the total amount you're approve for, which means you don't have to pay that total amount back.
Lines of credit come as secured, unsecured, revolving, non-revolving and a demand lines of credit. With a revolving credit line, you're able to continuously borrow money until you've reached your credit limit. Like a credit card, whenever you make a purchase, that amount is taken from your total credit limit, and whenever you make a payment, your credit limit goes back up.
How can I get a small business line of credit?
Online lenders like Kabbage Funding™ can secure lines of credit to small or online businesses with less established credit histories.
The Kabbage Funding application can get you approved for a line of credit in 10 minutes or less. All you need to do is provide your business information, bank account info and personal information. In a matter of minutes, they can analyze your information and let you know if you've been approved, how much funding you can access, and what your fee rate will be.
If you're approved, but don't need the funds yet, not to worry. You don't have to start paying anything back until you actually borrow funds. Applying for a Kabbage Funding small business loan is similar to applying for a credit card. If you're approved, you get the card in the mail and can use it to access funds if and when you need them. If you don't use it, you don't pay anything back. Makes sense, right?
While traditional lenders can be reluctant to extend loans to individuals or businesses with less stable credit, applying for a line of credit loan through Kabbage Funding is facilitated online through an automated process – giving you a faster turnaround time to meet your business needs.
What is revolving credit?
Many businesses utilize business line of credit loans to increase their working capital. Using this type of small business loan is a great way to bridge the gap between the tasks you need to do and the cash flow you need to get them done.
Lines of credit are mainly to help even out your cash flow. Most line of credit loans are also revolving. Revolving credit is faster and more flexible than a bank installment loan. If you need working capital quickly, this can be a great option to allow you to stay focused on your business. This type of funding is ideal for short-term purchases and expenses. Revolving lines of credit are typically used to help a small business manage the monthly ups and downs of running a business: paying bills, covering payroll, dealing with cash flow shortages or making short-term investments and improvements. The structure of a line of credit allows you to dip into your amount frequently and pay back quickly to help manage any bumps in the road and keep moving forward.
Kabbage Funding offers revolving credit lines for small businesses up to $150,000. We look at the overall performance of your business through our online, automated approval process and can help you avoid the extensive paperwork and wait times required to get a traditional loan.
What is a revolving line of credit?
Revolving credit is a flexible method of borrowing money for your business. Instead of borrowing a fixed amount of money all at once, revolving credit allows your business to borrow working capital in increments that you need, up to a pre-approved limit. You make payments on a regular, predetermined schedule, and you can borrow or use more as your principal is paid down.
Revolving credit is an important way for small business owners to keep operations going smoothly with the ups and downs of sales, seasonal changes and occasional cash flow shortages. Getting revolving credit can enable your business to pursue opportunities quickly, even when you don't have funds available to invest.
Another term for revolving line of credit is a small business line of credit. Because of the cyclical nature of business, you may need to borrow money to meet your short-term needs or goals. One commonly used option to obtain these funds is by securing a line of credit.
As long as you make your minimum payments and avoid taking on too much debt for your business to handle, revolving credit can be an effective cash flow management tool for your business.
Is a revolving line of credit a good fit for my business?
While it's ideal to have savings to help your business weather storms, the next best thing is to apply for a small business line of credit. Business credit lines were designed to help you meet short-term cash needs, such as purchasing supplies or additional inventory or covering operating expenses. Essentially, a business line of credit can help small businesses thrive and grow.
A small business line of credit is also a good option to offset fluctuations in working capital when your expenses stay constant. It will give you access to funds to continue to pay bills on time or purchase additional inventory if needed. Typically, lines of credit are best used for short-term working capital needs like covering payroll when you hire new employees; purchasing inventory during a busy season or to fulfill a larger order; or offsetting seasonal lapses in cash flow. If you know you'll need funds soon but you're not sure exactly how much you'll need or when, revolving credit can give you the flexibility to navigate gaps in cash flow.
The advantage of a line of credit over a regular business loan is that interest is not usually charged on funds you don't actually use. Additionally, your business can draw on the line of credit at any time.
Revolving line of credit vs. Business credit cards?
While a revolving line of credit is very similar to a credit card, it's important to remember that they aren't the same. Credit cards tend to have higher interest rates and charge additional fees for cash advance and balance transfers. They also require monthly payments while some lines of credit don't. Your loan amount is also higher through a business line of credit. Business credit cards are unsecured loans, so they may require personal guarantees, which makes you liable for any unpaid debts. If you're trying to grow your business, a business line of credit is the better option.
Revolving credit vs. Non-revolving credit?
The vast difference between a revolving line of credit and a non-revolving line of credit is in the name alone. With non-revolving credit, you're not able to reuse funds once you've paid them off. Non-revolving credit tends to have lower interest rates and more predictable payment schedules, but it doesn't have the flexibility of revolving credit. Revolving credit allows you to use funds for a variety of purchases.
Revolving credit vs. Installment loans?
Revolving credit is open-ended, which means you can borrow as much as you want (within your approval limit) without having to reapply each time. You can access the cash quickly and whenever you need it. An installment loan is a longer-term financial proposition. They tend to be used for larger purchases and investments for your business, such as opening a new location or purchasing new equipment. However, installment loans have fixed payment terms on specific dates, making them much less flexible than revolving lines of credit.
Example on how to use a business line of credit
You can use revolving credit for various reasons. For example, if your store was unexpectedly damaged, you can apply for a business line of credit to get some quick funding to fix it. Or let's say you need funding to make payroll for the next week. A revolving line of credit puts that capital in your bank account as soon as you borrow it. Revolving credit is also a great option for seasonal businesses who see a lull in cash flow.
Let's say you need $5,000 to fix your store, and you're approved for an amount of $20,000. With a traditional term loan, you would take out the total approval amount and begin paying it back. However, with a revolving line of credit, you only pay back what you borrow. If you take out the $5,000, you'd be paying back only that amount. Like a business credit card, the $20,000 is simply the total amount you can take out at one time. Let's also say you need $75,000 for payroll and are approved for $100,000. Again, no need to pay back $100,000 plus interest, unless you take out that total amount. The more you borrow, the more you pay back. Once you make your payments, your credit limit goes back up.
A business line of credit is pretty flexible. You decide how much you want to use from the overall approved credit amount, whenever you need extra capital. As long as you have funds available, you are free to use your capital for whatever your business needs.
Accessing your business credit line online is simple. Anytime you need funds, you can withdraw from your line of credit.
Unexpected expenses happen to the best of us, and extra funds from a short-term loan can help. Short-term business loans are meant to be a solution for a short-term problem to help bridge gaps in cash flow. They’re great when you just need extra capital right now, and you know you’ll be able to pay it back quickly.