Business Line of Credit

As an independent firm, AB Funding moves efficiently through engagements and its advisors execute with the best interest of the client in mind. We are fully invested in finding the appropriate financing path for our clients.

Founded by former lending professionals, AB Funding has deep-rooted relationships within the lending marketplace. Our partners are a combination of lending institutions across the credit spectrum. We work with Banks, Specialty Finance Companies, Family Offices, and Private Equity groups. Our mission is to develop a path for companies and lenders to work with efficiency and transparency. As a liaison to our partners and clients, we think that all parties in a refinancing process can benefit from a thorough and thought-out process. Our firm and our professionals deliver “Efficiency by way of transparency“.

Here’s how a business line of credit works:

1. Application: You apply for a business line of credit with your lender, providing information about your business’s financial health and creditworthiness. The lender will then determine your maximum credit limit.
2. Approval: Once approved, the lender will provide you with a credit limit and an agreement outlining the loan’s terms, such as interest rate, repayment terms, and fees.
3. Draw: You can draw from the line of credit as needed, up to the credit limit. You may access the funds through a check or by transferring them to your bank account.
4. Repayment: You pay interest on the amount borrowed and may be required to make minimum monthly payments. You can also repay the entire amount borrowed at any time without penalty.
5. Re-borrow: Once you repay the borrowed amount, you can reaccess the funds, making it a flexible source of working capital.

There are two types. of business lines of credit: secured and unsecured business lines of credit which could be also known as small business lines of credit. Both options qualify a borrower for a set amount of credit, businesses must understand what each option entails.

As the name implies, secured business lines of credit are financing that requires collateral or an asset that will serve as security for the small business loan. It could be real estate, equipment, or other valuable assets the company holds. Regardless of the purchase, the collateral adds a layer of protection for the credit line.

With collateral, lenders will have something to repay if the borrower defaults on the loan. This gives them enough confidence to offer excellent terms and high credit limits to borrowers.

Unsecured business lines of credit do not have the collateral requirement. That being said, the lenders have nothing to tie up the loan to. Nothing to seize in case the business cannot fulfill the monthly payments. This adds significant risk to the lender’s side. Lenders are more likely to charge a higher interest rate for the financing and may require the borrowers to sign a personal guarantee agreement to mitigate the risks.

Another distinction that borrowers must know is the difference between business lines of credit and business credit cards. Both options work similarly in a way that it provides businesses with access to a set amount of credit line. But there are certain things that you cannot pay for using your credit card, but a line of credit can cover.

A business credit card can come in handy in many instances. For instance, you can use the card for expenses like company food purchases, travel expenses, purchasing inventory, or paying the utility. Business credit cards also have a higher credit limit than personal credit cards. Plus, many credit card providers don’t report business activities to personal credit, making it an ideal solution for businesses who want to separate business and personal expenses and those who want to protect their personal credit.

But it’s worth noting that you can only use credit cards for vendors that accept credit card payments. If the vendor doesn’t accept credit cards, you may have to resort to cash payments. This is where a business line of credit can come in handy. You can use the cash from your business for expenses like working capital, rent, payroll, and other invoices. Plus, business lines of credit can also have higher credit limits than credit cards.

So, how do you know which financial resource to get for your business?

Having both financial resources can be helpful for your business. In general, use a business credit card under the following circumstances:

• You don’t need a significant amount of cash for a specific business expense
• You want to take advantage of detailed expense tracking
• Paying for travel expenses like plane tickets, meals, accommodation, etc.
• You want to earn rewards like points or cashback

Choose a business line of credit if:

• Your business needs to fund a short to mid-term investment like expensive equipment
• You want more flexibility
• You need a financing resource with higher credit limits