Line of Credit Loan
Occasionally, throughout one’s business activities, the need for emergency cash support will arise. To address immediate financial needs, you can either approach individuals, banks, non-bank financial companies, or other lenders. With this scenario in mind, lenders like FlexiLoans developed the instant line of credit online, which would be a program that allows you to withdraw funds up to the point required from the overall limit. You have to pay interest on only the amount of money used during the specified period.
You can satisfy your funding requirements with a loan, which provides a one-time lump sum investment to assist in growing your firm through the acquisition of infrastructure, equipment, and machinery. Consequently, you need to repay the debt up to the specified tenor via fixed EMIs designed to pay off the loan in full by the stated tenor's end.
What Is A Line Of Credit Loan?
A line of credit is essentially an arrangement between a borrower and a lender, which can be a bank or a non-bank financial company. As per this agreement, the lender agrees to advance the borrower a maximum sum. The borrower may withdraw funds up to the maximum amount at any moment. The interest is on the principal amount borrowed, not just on the total amount borrowed. It is one of the primary benefits of having a line of credit. The borrowed funds can be useful for any purpose or to meet any need.
But What Is The Difference Between A Business Loan And A Line Of Credit?
When we discuss the distinction between these two, we find that they are just marginally different. Both are purely credit products from which a borrower can get a certain amount of money, which is entirely dependent on the borrower's eligibility and reputation. In all cases, the borrower will have to repay the loan in monthly or quarterly installments.
The difference is that with a loan, you borrow a lump sum of money at a time. The interest rate is set on the amount borrowed, and if you want additional funds, you must obtain another loan. However, a small business line of credit establishes a maximum limit on the amount of money you can borrow to meet your needs. Interest is on the principal amount borrowed.
Lines of Credit are typically offered in two types by traditional lenders such as banks and NBFCs. They are both secured and unsecured. Although the type of advance's name indicates its main characteristics, it is necessary to study more about it to understand the nature of the line of credit loan you are taking out.
There Are Two Types Of Lines Of Credit:
Secured Line of Credit: This is a sort of advance in which you ensure the loan by pledging an asset as collateral. Perhaps the loan, backed by enough security, helps the online lender to charge more flexibly and lower interest rates because the risk of failure is less. Thus, there is much more chance to recoup the remaining advance payment by liquidating the security.
Unsecured Line of Credit: As the term implies, there is no collateral involved as a form of security, making the advance riskier. The majority of LOCs are collateral free, meaning the borrower does not want to put up any collateral to secure the loan. Credit products with a maximum credit limit and a high-interest rate are common. It is a good funding alternative for people who cannot meet their short-term financial obligations.
Line Of Credit Loan Advantages
- Flexibility: Once the lender approves the LOC amount, the borrower may withdraw any amount up to the allowed limit. Borrowers do not have this option with other loan types, such as business loan in india.
- Cost-Effectiveness: The borrower is only responsible for the amount borrowed, not for the whole credit line allowed by the lender.
- Appropriate for business owners: Often, new business entrepreneurs lack the financial resources necessary to pay off a large loan all at once. Additionally, their financial requirements fluctuate with time. LOCs are the best type of loan for such people.
- Large credit limit: In comparison to standard loan products, the borrower can benefit from an extraordinarily high credit limit, allowing them to handle their financial responsibilities with more ease.
- Best option: For self-employed individuals, an online line of credit is a better option than a personal loan because it provides a comparable solution but at a greater cost. As a result, it is more beneficial in terms of both flexibility and cost.
- Interest rates: The interest rate levied on a business line of credit loan has two characteristics. To begin, the rate is significantly lower than that of regular loans. Second, the loan outgo reduces, as the loan is only serviced up to the limit of the funds used rather than the total sanctioned amount.
Important Tips for Maximizing the Benefits of LOC
While obtaining approval for your LOC finance request is rather straightforward, you must realise the critical nature of utilising this flexible loan type to your best advantage. To that end, here are some guidelines to follow:
- Take out a loan only if you are in desperate need of money.
- Ascertain that you have a good plan in place for how you want to spend the loan funds.
- Consider taking out small business loans and repaying them in full before extracting further funds. This will assist you in managing your repayments more efficiently.
- Given that you have previously chosen a short-term business loan, you should consider putting your credit card on hold; otherwise, you risk incurring double debt.
- Whenever you withdraw cash from your LOC, ensure that you have a repayment plan in place that takes your living expenses into account.
- Every month, without fail, pay off all your EMIs in full. This practice will not only assure effective loan payback but will also help you retain a high credit score.
- Additionally, most lenders offer quarterly installment payments instead of monthly repayment. Determine which repayment plan is most appropriate for your financial position and make the appropriate call.
- Utilize your sanctioned loan amount only when necessary, and never for pricey electronics, vacations, or other similar extravagant purchases. Inadequate preparation for the size of your LOC might land you in significant debt.
- If you are unable to pay your EMIs in full, the lender will charge you extra interest on the remaining balance, raising your total interest expense. As a result, always make on-time payments on your EMIs.
How to Get a Line of Credit Loan
- Online Application: Log on to the FlexiLoans website and complete the application form by correctly filling in the relevant information. FlexiLoans will use these details to assess your eligibility for the line of credit loan.
- Upload the required documents online: Upload all necessary documents, such as KYC documents, current account bank statements, and business KYC documents. You can also check your business loan eligibility criteria by uploading all these documents.
- Credit Analysis: We will assess your business results and operations to calculate the amount of money you are eligible to borrow and the business loan interest rates that will apply. Our loan officers will assist you in understanding the bid and making the right decision.
- Loan Disbursement: FlexiLoans will share the loan agreement after verifying the documentation and approving the loan, which can vary from 50,000 to 10 crores for 36 months. The funds are disbursed to the applicant's account within 48 hours of signing the document.
LOC Repayment Procedure
If you have ever maintained a credit card and seem to be aware of the payment system for the invoiced amount, understanding the LOC payback method will be a lot easier.
To explain, let us use an illustration. For instance, for a credit limit of Rs. 2 lakh for a LOC. If you withdraw Rs. 100,000 at any point in time, you will indeed be given a deadline by which you must repay the whole amount via EMI, which will include both the principal and interest components.
Meanwhile, if you want an extra Rs. 20,000, you may easily cash it. In this instance, you would be returning the complete sum of Rs. 1,20,000, as well as the interest accrued on the amount, within the payback time specified.
Eligibility Criteria for Business Lines of Credit
|Age of business (from the date of registration)||1-year|
|Monthly business sales||Minimum ₹2,00,000|
- While applying for the loan, the individual ages must lie between 21 and 65.
- LOC is available to individual corporations, sole proprietors, and private companies involved in trading, production, or services.
- The applicant must have worked in the industry for three years and have at least five years of experience.
- The company should have been in operation for at least a year and gross monthly sales of at least $200,000 per month.
- more than 3 years of service.
- We would also ensure that there are no errors in previous accounts and, as such, the company is tax compliant.
Finally, verify that the paperwork is in order well in advance of applying for a loan with us and hold it in digital format so that it can be submitted during the application process.
Documents Required For Merchant Cash Advances
|Personal KYC||PAN card|
|Residential Address proof (Any one)||Rent agreement, driver’s license, voter’s ID, ration card, Aadhaar card, passport|
|Banking||Last six months’ current account bank statement|
|Business KYC (Any one)||GST registration certificate for businesses and shops|
|Financial documents (For loans greater than 20 Lakhs)||2 years’ audited financials (maybe the last 2 years), ITR GST returns of 6 months|