A business line of credit is an unsecured loan with a fixed interest rate for a set period of time. It is designed to help businesses grow and expand their operations.
The amount that you can borrow depends on how much your company earns, the size of your borrowing request, the length of the repayment term, and any other terms that are included in your agreement.
A business line of credit (also called a revolving account or a cash advance) is an unsecured personal or commercial loan where the borrower agrees to repay the principal plus interest over a pre-determined period of time, usually one year.
This type of loan may be used by individuals, families, self-employed professionals, small businesses, non-profit organizations, government agencies, and large corporations.
When compared to a traditional bank loan, a business line of credit requires less documentation, is typically cheaper to obtain, has lower rates of interest, and does not require collateral as part of the application process.
A business line of credit provides flexibility in financing because there is no need for collateral. Instead, the lender holds the money until it is repaid.
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Business line of credit features and benefits
Following are some advantages of using a business line of credit for quick finance.
- Small business owners have access to flexible funding options to meet current obligations, including payroll, equipment purchases, debt service, and more.
- Limit up to Rs. 3 Lakhs
- Low interest rate – 2% per month
- Short repayment period up to 60 days
- App based flexible withdrawal and repayment
- One time processing fee
- Get instant money into your bank account by availing the business line of credit
- Repayments are generally due monthly or quarterly but can also be paid off in full at any time without penalty.
- Interest accrues during the payment period and is calculated based on the total outstanding balance on your account.
- There is no prepayment penalty
How do I qualify for a business line of credit from Ziploan?
The amount of money that you can borrow depends upon several factors:
- Bank statement (12 months)
- Business registration proof
- KYC documents (PAN Card, Aadhar Card, driving license, voter id, etc.)
- ITR should exceed Rs. 1.5 lakhs two years
- Any other conditions placed on the line.
You must submit all required documents to our website or App to determine if you are eligible for this type of lending.
How long do I have to pay back my business line of credit? Most banks offer a minimum 6 month grace period when you first open a business line of credit.
If you use the money before then, you’ll likely need to make additional payments to cover the interest accrued since your last payment.
Understanding secured and unsecured lines of credit
A business line of credit comes with many different types of loans. Some can be considered secured because they require you to pledge something valuable, like inventory or receivables, as collateral.
Others are unsecured because there is nothing of value that is being pledged to secure the loan. For example, if your business sells products online, you might choose to ask your banker to accept only online sales revenue as security for the loan.
Because some lenders consider certain types of business assets too risky, they often require you to sign a “covenant” stating that you won’t use the funds to purchase certain kinds of property, such as real estate.
These covenants aren’t always enforced by the lender, so you still have to be careful about how you spend your money.
Types of business lines of credit include:
- Secured lines of credit
- Revolving accounts
- Unsecured lines of credit.
Secured lines of credit:
This kind of borrowing requires you to put up something of value that serves as collateral. For example, if you buy a home using a mortgage, that house serves as collateral for the loan.
Revolving accounts:
This type of line of credit allows you to draw down your entire balance each month (or quarter). When the balance dips below zero, you repay it through your next statement cycle.
Unsecured lines of credit:
These lines of credit don’t require you to put anything up as collateral. Instead, these are more flexible than secured lines of credit. They allow you to draw down just what you need each month and repay the rest later.
Business lines of credit vs. Commercial loans
Although both types of financing are used to finance businesses, they serve very different purposes. A commercial loan is designed to help you acquire new equipment, expand an existing facility, or fund start-up costs.
On the other hand, a business line of credit is intended to provide short-term liquidity and working capital.
Commercial loans typically offer higher interest rates and repayment terms than business lines of credit.
Remember, however, that even though business lines of credit can be less expensive than other forms of financing — especially small amounts — they may not be right for every business.
How to apply a business line of credit from Ziploan
Following are the steps to apply for a business line of credit from Ziploan.
- Sign up with your registered mobile number
- Fill in your basic details to check your loan eligibility
- Get a real-time conditional offer basis on your PAN & Aadhaar Card
- Upload required documents – Address proof, Bank statement & ITR
- Now track your loan application status on App for approval
- Loan application is approved and money is transferred directly to your bank account
Things to remember when applying for a small business line of credit
You might be thinking – is it worth getting a line of credit for business?
Ask yourself whether you really need a large amount of cash in one go or whether you could manage your finances better using multiple smaller purchases.
If you think a business line of credit would work well for you, here are some things to keep in mind:
- You want to borrow enough to meet your immediate needs but not so much that you run out of money on your next payday.
- Your bank will usually give you a set number of months to pay off your loan, after which time you’ll start paying the interest again.
- The interest rate you’re charged depends on a variety of factors, including your credit score and the size of the loan.
- If you take out a business line of credit, make sure you understand any restrictions that apply.
- For instance, if you plan to use the loan to purchase inventory, make sure you know exactly how long you can hold onto this inventory before having to return it or sell it at a loss.
- In addition, make sure you get all the documentation required by law. This includes a copy of your federal tax returns, a list of all outstanding debts, and a description of your company’s financial condition.
- Also, make sure you understand the fine print. Many banks impose minimum credit limits.
And remember, borrowing from friends and family isn’t a good idea when you’re looking for a business line of credit.
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