Due to the lower borrowing limit, shorter terms, and interest system, it’s best to use a business line of credit for short-term initiatives. Examples of when working capital needs a boost include ordering inventory, covering operational business services expenses for a month or two, or a lump sum for hiring more workers for a last-minute project. A business line of credit can help manage inventory during peak seasons.

Business line of credit rates and fees can vary widely depending on the provider, loan amount, and repayment term. Here’s what you can typically expect:

Interest Rates: Rates usually range from 7% to 36% APR. The exact rate will depend on your creditworthiness and the lender’s terms.

Origination Fees: These fees can range from 1% to 5% of the loan amount and are charged for processing the loan.

Maintenance Fees: Some lenders charge monthly maintenance fees, typically between $10 to $50, to keep the credit line open.

Late Payment Fees: If you miss a payment, you might incur late fees ranging from 1% to 5% of the outstanding balance.

Effectively managing a business line of credit is essential to maintaining your financial health. Here are some steps to help you stay on track:

1. Understand the Repayment Process and Terms: Know when payments are due and the amount required. This helps avoid late fees and negative credit reporting.

2. Make Timely Repayments: Always pay on time to maintain a good credit score and avoid additional fees.

3. Monitor Your Credit Limit and Available Funds: Keep track of how much credit you have used and what remains available.

4. Use the Line of Credit for Business Purposes Only: Ensure that all borrowed funds are used for business-related expenses to maintain financial discipline.

5. Review and Adjust Your Budget: Regularly review your budget to ensure you can afford repayments and adjust as necessary.

6. Consider Consolidating Debt or Refinancing if Needed: If you have multiple debts, consolidating them into one payment can simplify management. Refinancing might also offer better terms.

By following these steps, you can effectively manage your business line of credit and maintain a healthy financial position.

This is one of the first questions you should ask when seeking a credit line: Is the product revolving or non-revolving? With a revolving line of credit, paying back what you borrow makes those funds available again. As long as you continue to pay off your total balance, your terms and interest rate stays the same.

A non-revolving line of credit, on the other hand, does not replenish when you pay off the total balance. You borrow, pay it back, and then it’s gone.

An unsecured business line of credit is like a revolving credit card with a higher borrowing limit and lower interest for business line of credit rates. Hence, this decision primarily depends on the cost of the expense at hand. Interest rates on business lines of credit are typically lower than those of a business credit card.

A business credit card might be better to cover a few minor, recurring expenses. You should pursue a small business line of credit to cover more considerable temporary costs. To clarify, a small business line of credit makes more sense when you regularly need extra cash for more substantial expenses. On the other hand, a business credit card is best for minor expenses that don’t increase in cost. In addition, you may avoid the credit card annual fee, although some lines of credit have draw fees or account fees.

Will a small business line of credit work for you? At United Capital Source, we’ve helped get revolving credit lines for hundreds of industries, from retail to landscaping to auto repair.

This option is probably your best if your company experiences seasonal fluctuations or inconsistent monthly revenue. When considering a small business line of credit, ask yourself these questions:

Do I need…

1. To make several quick investments instead of one long-term investment?

2. Flexibility instead of a fixed repayment schedule?

3. Quick access to funds?

If you answered yes to these questions, then credit business lines are probably the right choice for you.

This product is available to borrowers with bad credit, but your borrowing limit may be lower, and your interest and terms will be less convenient – i.e., you might not get the prime rate for the product. However, if your cash flow is solid, poor credit may impact your borrowing limit, interest, and terms less.

We’ve repeatedly mentioned that the best time to apply is before you actually need the money. Thus, if you’re concerned about poor credit or business credit score impacting your borrowing limit or interest, you should improve your minimum credit score before applying. UCS even offers credit repair services for this exact situation.

A secured business line of credit requires collateral to back up the loan, such as business assets or property. This reduces the risk for the lender, allowing for potentially higher credit limits and lower interest rates.

On the other hand, an unsecured business line of credit does not require collateral but typically has stricter eligibility requirements and may come with higher interest rates. Businesses must weigh the benefits and drawbacks of each option to determine which type of credit best suits their financial needs and risk tolerance.