Business Line Of Credit Loans

Business line of credit loans are very commonly used by enterprises for a variety of short term needs, and yes you will need a solid business plan for any line of credit.

There are about three different types of line of credit loans available. Most of these loans are based on the cash flow, the industry and company financial ratios, and the credit profile of the particular business.

Most businesses will, at some time, need short-term financial help. This is the primary purpose for business line of credit loans. Your business might need a little help because you need to

• purchase additional seasonal inventory,
• handle unexpected operating costs, or
• deal with unanticipated cash flow problems for whatever reason.

This is when you would look for a line of credit loan.

Repayment on Demand

The most commonly used line of credit loans are the demand line of credit. This means that the amount loaned is payable on demand of the lending institution. There are seldom any set terms or schedule for repayment.

Revolving Line of Credit

Another form of line of credit loans are the revolving line of credit. This operates very similar to personal credit cards. Your company is given a specified amount of money which you can use when needed and payments are based on market interest rates.



Often this type of line of credit loan requires at least a one year commitment from the lender. After that time your loan can be sold to another institution which may change the rates.

There is typically an annual fee associated with revolving business line of credit loans.

Asset Based Line of Credit

The final type of line of credit loan is based on your assets. This means that how much money you are given for the loan is dependent upon your inventory, accounts receivable, or other assets as determined by the lending institution.

For this type of line of credit you will generally have to file regular reports (sometimes as frequently as once a month) detailing the status of the assets, inventory, accounts receivable, or whatever the loan was based upon. This is one of the only forms of line of credit loans which is based on some form of collateral.

Applying for Business Line of Credit Loans

Applying for any time of LOC is every bit as challenging as applying for any other type of business financing.  A business plan is essential.  Even if the lender does not specifically request a business plan, being able to present one may indeed bring you a more favorable interest rate -- nothing to be sneezed at.

Before applying for any business line of credit loans, first determine what your needs really are, how much you will need and for how long, and then check your business’ normal cash flow to figure out if you would really be able to afford the repayments. In some cases you may be able to negotiate a line of credit loan which allows you to make interest only payments while your business grows or recovers.

When looking into business line of credit loans, bear in mind that these loans are intended to be temporary relief from specific situations and not something to be utilized for the long-term.

Some of these loans will require you to maintain a “clean-up” period which means you have to maintain a zero balance for a specified amount of time (usually 30 days once a year) in order to continue the line of credit. There may also be restrictions to the number of times you’re allowed to draw upon the funds within a certain time frame.

Business line of credit loans can be very helpful for small businesses that need just a little help at certain times.

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