Every business needs funds to operate. Small businesses may need short-term business financing to adapt to occasional or ongoing changes and challenges. A business line of credit may be a great funding source in these situations. However, business line of credit interest rates need to be considered when using this source of funds.
What is a Business Line of Credit?
A business line of credit is a short-term business loan that gives a business access to a predetermined amount of money that can be borrowed as needed. It is like a business credit card but with a much higher credit limit. A business line of credit is a revolving loan (unless a non-revolving loan is used). Funds can be used from the approved funding amount, repaid, and reused again and again as payments are made. Compared to a traditional loan that charges interest on the full value of the loan, a business line of credit is charged only against the amount of funds used.
Business line of credit interest rates are lower than those normally paid for credit card use. Unlike traditional loans, business line of credit funds don’t need to be designated for a specific purpose or expense. Funds can be used to pay for past-due invoices, quarterly tax payments, seasonal cash flow needs, operating expenses, equipment, payroll, repairs, and more.
There are secured and unsecured lines of credit. Secured business lines of credit require business assets to back the credit line. Unsecured lines don’t need collateral, but unsecured business line of credit interest rates will be higher than secured lines.
Understanding Business Line of Credit Interest Rates
Business line of credit interest rates will vary between lenders, and rates will change based on market conditions. The following factors influence rates:
- Your business and personal credit scores. The higher the credit scores, the lower the interest rates that lenders will be willing to offer.
- Your time in business. Many lenders will want to see one to two years in business, although some will be willing to allow six months in business.
- Your business income. Lenders will want to see a picture of steady revenue and evidence of strong financial health.
- Interest rates will be lower for short-term lines versus long-term lines.
- Interest rates will vary if lines are secured by collateral versus unsecured.
- Interest rates will be influenced by economic conditions.
In addition to the interest rate charged, other costs may include an annual fee for each year the line of credit is open, an origination fee, and a draw fee for each time a withdrawal is made from a line of credit.
Where Can You Get a Business Line of Credit?
Line of credit sources include banks and credit unions, the Small Business Administration, online lenders, and business financing specialists. The key is to research the ways to get a line of credit with the most favorable business line of credit interest rates.
Seek Expert Business Financing Assistance
Contact CAB Capital, based in Mt. Pleasant, SC. We offer small businesses custom-matched financing solutions that can be faster or more flexible than other financing solutions. We have access to a vast suite of more than 150 products from a group of 67 different lenders so we can ensure you get the funds and the terms you are looking for.