A business line of credit can be a great cashflow solution for business both big and small. With greater flexibility than can be achieved with a fixed term loan, a business line of credit provides the flexibility to access capital when you need it at short notice.
Better still, with a business line of credit you only incur fees and charges on the amount you have drawn down on the balance (the amount of capital you use). This means you aren’t paying fees and interest on funds you don’t need.
Other benefits include:
draw down when you need it
no unnecessary interest payments
no need for full financials
Business Line of Credit
A business line of credit is quite different to your more traditional term loan. It’s important to identify the best use case for a line of credit and to understand how it can best be utilised in your business.
An unsecured term loan is a loan facility repaid in regular payments over an agreed upon period of time. Unsecured term loans typically span a maximum period of 12 to 18-months and usually comprises of a fixed interest rate and fee structure, allowing the borrower to budget their cash flow over the life of the loan until it is repaid.
An unsecured business line of credit can be far more flexible than a fixed term business loan. A business line of credit is provided by a lender and a maximum amount the customer can borrow is agreed upon. The borrower can then access funds from the business line of credit at any time, as long as the maximum credit limit is not exceeded. Payment frequency and amount then vary based on the amount borrowed at any given point in time.
Business Line of Credit Comparison Table
|Unsecured Business Line of Credit||Unsecured Business Term loan|
|Loan Term (Length)||12-Months (Open ended)||Fixed loan terms typically up to 18-Months|
|Requirements||ID check (Licence)|
3-Months in business
|ID check (Licence)|
3-Months in business
|Time to Settlement||Approved and settled in 24-hours||Approved and settled in 24-hours|
|Finance Amount||$25k+||$5,000 to $300,000|
|Ability to redraw||At any time up to total approval amount||Must re-apply with lender|
|Interest Costs||Only pay for what you use||Interest and fees payable on total loan amount|
Business Lines of Credit
There are a number of different options available to a business owner when it comes to securing a business line of credit. These include a standard credit card and other more flexible options with broader business advantages.
An unsecured business line of credit tends to be the preferred choice of business owners when sourcing a line of credit. A key benefit being no security is required (collateral such as a house or car is typically required when setting up a secured line of credit). Further, larger loan amounts are available than which can be achieved with a normal business credit card.
Invoice financing is a line of credit that puts cash flow back into your business by getting a third party (financier) to pay your outstanding invoices immediately. Essentially you’re selling your invoices at a discounted rate to a third party. Similar to a traditional line of credit, you only pay interest on the balance utilised and have funds available to you at a moments notice.
Most businesses have a credit card associated with their finances. A credit card can be a great option as a line of credit when only limited funds are required. It can however prove difficult to borrow larger amounts.
|Loan Type||Benefits & Suitability|
|Unsecured Business Loan||Facility term 3 – 12 months|
Any business purpose
Top-up & early payout options
An unsecured business loan is typically repaid over an agreed period (up to 12-months). These types of loans are usually to fund a specific business task, project or for general cash flow. With this type of loan you know exactly what the repayment commitments will be and can budget accordingly.
|Unsecured Line of Credit||Facility term 12 months (Revolving)|
Typically used as a cash-flow facility
Line of credit with no line fees
An unsecured line of credit is perfect for businesses which have irregular cashflow. A line of credit is a flexible form of unsecured finance which only incurs fees on the amount which is drawn upon.
|Unsecured Equipment & Vehicle Loans||Facility term up to 60-Months (Revolving)|
Can be more affordable due to longer terms
Unsecured equipment finance (otherwise known as rent to own) allows a business to rent equipment with the option to purchase at the end of an agreed upon term. This flexibility can allow businesses to secure expensive equipment they require without significant effect on their cash flow.
for an Unsecured Business Line of Credit?
One of the benefits of an unsecured business loans is the application process is generally far quicker than a secured loan through a financial institution.
only borrow what you need
what do you want clarified?
it’s fast, 5-minutes
think about payment frequency
- What do I need to qualify for a loan?
To qualify for an Unsecured Finance Business Loan you will typically need to have the following:
- A business with 3 or more months trading history.
- Turnover in excess of $5,000 per month
- Regular cash flow (daily, weekly or monthly)
- What do I need to apply?
With unsecured funding the lender typically only needs to identify who you are and find out some basics about your business such as:
- The last 3-months of banks statements for your business
- Some form of identificaiton (Drivers licence)
- How do I know how much I can borrow?
Just like a secured loan, the maximum amount you can borrow is determined by the amount of revenue and cashflow coming through your business. However, to determine capacity generally only a copy of your recent bank statement is required. Unlike secured loans which normally require your last years full financial records.
- How long will it take to apply?
The online application process is normally quick and easy, and should only take about 10 minutes to complete. If you would prefer to talk to someone in person most lenders are going to be able to take your application over the phone.
- When will I know if I have been approved?
The benefit of an unsecured loan is that typically approvals will be provided inside the same business day. This makes unsecured loans a great option for those who require business capital in a hurry.
- What will the interest rate be?
Every business is different and therefore the same loan or rate will not suit every business. As such, the interest rates on unsecured business loans change depending on the health of your business and its cashflow. Once you have submitted an application the financier will asses your business and it’s capacity to repay the loan and provide you with a summary of how much you can borrow, the interest rate on your loan, and a break down of any fees or charges.
- How long is the standard loan term?
Typically unsecured business loans span between three and twelve months. With most business repaying their loans between six and nine months, however, many also like to keep their payments low and spread out their payments over the full twelve month period.
For those wishing to pay off their loans early, often a discount is offered.
- How quickly will I get the money?
This is one of the key benefits of an unsecured business loan. Generally if you apply during business hours and are approved funds can be transferred before the close of that business day.
Where do we start?
Unsecured Finance New Zealand are a leading provider of unsecured lending products. We have a great team with a wealth of experience in unsecured lending and can walk you through the process of applying for an unsecured line of credit.
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