Article summary: There are a few different business credit options to help you fund small business initiatives. Keep reading to learn more about how these credit options work.
What Types of Credit are Available to my Business?
The two most common credit financing options are a business line of credit (LOC) and a business credit card. A LOC is a revolving loan that gives business owners access to a fixed amount of money, which they can access when they need extra cash, repay, and use again as needed. A LOC has traditionally been one of the most popular options for meeting short-term capital and cash flow needs for small business owners.
A few examples of how your business can use a business LOC:
- Purchasing inventory
- Repairing business-critical equipment
- Financing a marketing campaign
- Bridging a seasonal cash flow gap
An Open-End, Revolving LOC
Although many lenders assign a term to a LOC, a business line of credit could be considered an open-end line of credit. In other words, the line of credit can be used up to the approved spending limit, repaid, and used again. Another term for open-end credit is revolving credit. Credit cards are a good example of an open-end credit line. A minimum balance payment is due every month as new charges are added to the balance.
Unlike a traditional small business loan, interest is paid only on the amount of credit used, as long as you make the minimum monthly payment. You can pay back as much over the minimum monthly payment as you choose every month until the end of the loan period, when the entire principal amount is due.
- Simple: Easy application & fast funding
- Tailored: Funds you need on your terms
- Human: Real, live loan advisors
Is an OnDeck Line of Credit Right for Your Business?
A line of credit is a great solution if your business regularly has short-term cash flow needs. The flexibility to access capital when needed, pay off the balance, and use the line of credit again in the future is very appealing to many small business owners. Unfortunately that same flexibility makes it difficult for a traditional lender like a bank to underwrite unless the business owner has exceptional personal credit.
We believe there is more to a small business owner than his or her personal credit score and look at multiple data points to help determine if a line of credit is right for your business—resulting in higher approval rates and greater access to this important small business financing tool.
When Should a Business Consider a LOC?
If your business regularly requires access to funds to meet short-term capital needs to manage the business’ day-to-day capital requirements, then applying for a LOC might make sense. Here are a few examples of situations where a LOC could be a good idea:
Example #1: A seasonal business that generates most of its sales in the summer could use a LOC in the offseason (provided they had the cash flow to make the periodic payments) to help cover overhead as they bridged from one season to the next. The LOC could allow them to maintain normal business operations even though their income fluctuates.
Example #2: A small business could use a LOC to finance a marketing campaign, which would attract new customers and expand sales. The borrowed funds could be paid off quickly because the campaign would potentially generate additional revenue.
Example #3: If a business needed to cover expenses while waiting for a client to make payments on an invoice, a LOC could be useful for cash management.
How it works
A new business without an established business credit profile or a business owner with a low personal credit score will likely have a difficult time qualifying for a LOC. Most lenders prefer to offer a LOC to more established businesses with a track record and revenues to support the more flexible financing provided by a line of credit. With that being said, applying for and accessing a line of credit with OnDeck is simple and straightforward:
- Apply Online: A fast and easy application that only takes a few minutes to complete or you can call (888) 269-4246 to speak with one of our US-based Loan Specialists Monday-Saturday.
- Draw Anytime: Draw funds whenever you need and we’ll deposit directly into your bank account.
- Early Payback: Pay back the balance via automated weekly debits, scheduled over 12 months. The funds are available to draw again as soon as they’re paid back. You only pay interest on the credit you access and there’s no penalty for early repayment.
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Lines of credit from $6,000 to $100,000
Applying will not hurt your personal credit score
What type of loan makes sense for your business?
Financing options to help you grow your business
If you’ve ever heard the adage, “It takes money to make money,” you must be a small business owner. Fortunately, there are more small business loan options available today than ever before—you just need to know where to look and what to look for. You don’t need to be a financing expert to build a successful business, but you do need to consider all the business loan options available to determine which one is best to meet your business need.
Unsecured Small Business Loans
An unsecured small business loan is simply a loan from a lender that does not require any form of collateral from a business or a business owner. This is based solely upon the creditworthiness of the applicant.
Many small business owners are interested in a loan for their business but don’t have the specific collateral a bank may require, such as specifically-identified real estate, inventory or other hard assets. Fortunately, there are lenders like OnDeck that do not require that their loans be secured by specific collateral, relying instead on a general lien on the assets of the business. These may be good options for many businesses.
Secured Small Business Loans
Banks generally prefer secured—rather than unsecured—business loans. Secured loans are loans that are backed with some sort of collateral like real estate, equipment, or other valuable business assets the bank can seize and sell if the loan is not repaid.
Banks (or other lenders that require specific collateral) commonly determine what they refer to as the loan-to-value ratio of your collateral based upon the nature of the asset. In other words, your banker may allow you to borrow against 75 percent of the value of appraised real estate or 60 percent to 80 percent of the value of what they call ready-to-go inventory. Because lenders might consider their loan-to-value ratios differently, you’ll need to ask any potential lender how they intend to set that value.
Small Business Loans for Different Industries
As a business owner, your needs may be industry-specific such as ordering kitchen supplies upfront or bridging cash flow while you wait for insurance reimbursement. At OnDeck, we understand and we offer tailored loan options (with multiple loan types, amounts, and repayment terms), so you can get a loan best suited for your industry and business. Here are some of the most common industries we work with and the small business financing options available to them.