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HOW TO CHOOSE THE RIGHT BUSINESS LINE OF CREDIT

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Posted on
May 16, 2019

Business owners always have this thought in mind. About their business growth, returns, success, etc. However, beyond all, finances are the pressing one that keeps bothering them. If you are traveling on that journey, then you need to stop worrying now. It is because the options are wide open for you to apply for a business loan and get money within no time. There is a catch for small business owners and that is exactly what we are going to address here to do away with all fear related to finances. There is something called a business line of credit (LOC) which is even more flexible than a business loan. So let us explain to you what it is and how to choose the right one for your business. 

HOW LOC GOT THE NAME INSTANT BUSINESS LINE OF CREDIT

In one simple word, you can understand what LOC is all about. Once you understand this, then you will agree on why we call it instant financing resources. LOC is similar to the credit card. You can get fund and repay them until it exceeds the credit limit. So it is a reserve fund that you can choose to get them at the time of need and yes instantaneously. 

WHEN SHOULD YOU OPT FOR A BUSINESS LINE OF CREDIT LOAN 

It is needless to say that, every successful business happens with proper planning. Nevertheless, there are instances when an emergency arises and funding is required. Therefore, one can go for a LOC loan in the following four instances. 

  1. When there is a dip in the cash flow especially due to the seasonal demands 
  2. At the time of fluctuation in the working capital 
  3. During inventory needs for handling festivals and holiday seasons 
  4. For investing in a short term business 

Business Line of credit is a flexible loan choice very small business owner must consider understanding them better to use it effectively. 

BUSINESS LOAN VS. A SMALL BUSINESS LINE OF CREDIT

The lender depending on several factors that include cash flow, credit rating, business turnover, operation of the business, business risk, etc., provides a business loan. Loan seeker should abide by the lender’s policy such as the repayment clause on a periodical basis, fixed interest rate, and fees. 

On the other hand, LOC is like a reserve amount, which the borrower can choose to utilize in the time of need. If the business draws funds from the line, then it must be repaid. Interest will be charged only at that time for that amount. In addition, the edge of LOC over business loan there is no threat on paying penalty for early repayment. Only there is a monthly maintenance fee charged after initiating the use of the line. 

TOP 5 GUIDELINES TO CHOOSE THE RIGHT BUSINESS LOC 

  • Unsecured Business Line Of Credit Vs Secured 

Understand your need to choose between secured and unsecured LOC. As you are aware if you go for a secured loan, then you need to submit a guarantee against the loan. The loan amount will decide the value of the security document to be pledged. In the event of you are not sure of the returns or you do not want to take the risk, and then go for a collateral-free unsecured business LOC. Do not worry about the credit score, as it is just one of the deciding factors for LOC approval.

Our call would be to opt for an unsecured business LOC to stay threat free and to focus on the business need and growth 

  • Amount Borrowed 

Based on the amount required for your business choose the business LOC. Choose the optimum credit limit as getting a higher amount than required will lead to overspending and hence put you in debt. For a large sum money requirement, you must go for a business loan. 

  • Interest Rate

Check with the rate of interest that the lender asks for before you confirm your LOC acceptance. Do not accept a very low-interest rate than the market as it might also end up in other hidden conditions. 9% is the minimum interest charged. 

  • Terms And Conditions Of The Loan 

Read the terms carefully and consult your financial advisor before you sign any agreement. The major constraint in LOC is the pay down provision where you need to pay the balance within a short time. Check this clause carefully and do not land in trouble. 

  • Fees And Other Charges 

This is another thing where you are caught and hence keep an eye on this. How much, fees is charged and whether it is annual or one time must be verified? Ask for the opening fees and closing fees. Check if there is any penalty in case you forfeit the line etc. 

DOCUMENTS REQUIRED FOR APPLYING FOR LOC 

  • PAN card of the business owner 
  • Either one of the documents as address proof for the owner such as ration card, aadhar card, passport, driving license, voter ID, rental agreement. 
  • Current A/c bank statement with the recent 6 months business transactions 
  • Business KYC documents namely the GST certificate, shop, and establishment certificate.

HIGHLIGHTS OF FLEXILOANS BUSINESS LINE OF CREDIT 

We are aware that several players are there in the market to offer business LOC. Hence, we wanted to give you an assurance that we are the best by letting you know about features. We are transparent in our process. 

  • The maximum credit limit is one crore 
  • The processing fee is very nominal and it is just one-time (2% only)
  • Tenure of the LOC allowed is up to one year 
  • Personalized interest rates and can be discussed based on the business nature, business profile, eligibility, and amount taken in line. 
  • The amount can be paid before the due date and prepayment does not require any extra fees 
  • Monthly repayment option for due principal amount and interest.
  • Monthly declining LOC. This means that in case you get an LOC of 1 crore for 10 months, then every month your credit limit will reduce by 10 lakhs. 

FINAL TAKE AWAY 

In spite of the odds, the business line of credit offers flexible repayment terms, instant money, collateral-free, and safe transaction. Thus we suggest you follow our guidelines and wisely choose the best business line of credit to keep your business win overall financial challenges.