What is different about a Spotcap line of credit?
How to apply for a business line of credit
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Spotcap's line of credit terms- what you need to know
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Understanding Business Lines of Credit
What you need to know as a business owner
What’s the difference between a business loan and a line of credit?
- A business loan is a single sum of credit given by a lender to a business. Categorised as a debt-based financing arrangement, a business loan is often used by companies to fund investment and growth, or cover unforeseen business costs. As a business loan is a fixed amount, it suits companies that know exactly how much credit they need.
- A line of credit, on the other hand, is an arrangement with a financial institution that gives a business access to a maximum amount of credit – sort of like a credit card. Borrowers are granted access certain amount of credit but are not obliged to use it all.
- The main advantage of a line of credit is its flexibility. Businesses can tailor what they withdraw from their credit line (known as ‘drawing down’) to their needs. Interest tends to be paid only on the amount a business spends, not on the entire credit line they were approved for. Each drawdown from the line of credit becomes a separate business loan.
Why are lines of credit useful for small businesses?
- Small businesses are often the most vulnerable when it comes to the effects of payment gaps and unforeseen expenses. For an SME, a delayed invoice can mean serious cash flow problems: a lack of working capital to operate the business, inability to replenish inventory, and even problems with payroll. A line of credit provides a safety net for businesses that know that might need credit, but are unsure about how much they will need and when.
- Businesses experiencing high surges in growth will often need to draw on a line of credit to maximise profitability. A line of credit is often used as security for businesses wanting to grow. It can be used for various purposes including managing cash flow issues, bridging receivables and purchasing new assets.
What’s the difference between a revolving and non-revolving credit line?
- Put simply, revolving credit is a type of credit line. A line of credit and revolving credit are financial arrangements made between a lending institution and a company or person. A lender provides access to funds that a business can use to for working capital, covering unforeseen costs or purchasing assets. The only fundamental difference between a revolving line of credit and a non-revolving line of credit is what happens to it after you have made a payment.
- If you make regular payments on a revolving credit account, the lender may agree to increase the amount of credit offered – again, in a similar way to a credit card. There is no set monthly payment with revolving credit accounts – interest accrues on what’s been borrowed. When payments are made to the revolving credit line, the repaid funds become available for borrowing again. The credit limit may be used repeatedly, as long as the borrower does not exceed the maximum agreed amount.
- Non-revolving lines of credit share many of the same features as their revolving counterparts. A credit limit is agreed upon, funds can be used for a variety of business purposes, interest is charged normally and payments may be made at any time. There is one major difference: The sum of available credit does not replenish after payments are made. Once you repay line of credit, the account is closed. This doesn’t mean the credit line won’t be available again – a lender may offer a similar or increased amount of credit after reviewing the borrower’s circumstances.
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