Business Line of Credit

Overview

Details

Advantages

Disadvantages

Business Line of Credit Overview

A business line-of-credit is commercial financing that is used for intermediate business financing needs, typically less than 1 year. The maximum loan balance is set by a bank or lender and the business can draw down on the fund as it is needed. Lines-of-credit that RPC can assist in arranging are from $250,000 for small businesses, to well over $250,000,000 for mid to large size companies.

Repayments for lines of credit are typically interest only and due monthly.

While each lender has their own criteria for their lines of credit, a typically lender will secure their lines of credit with assets such as accounts receivable or the equity in their hard assets.

A lender will extend a line-of-credit to a business based of a percentage of the A/R or net value of the hard asset.

Some banks and alternative commercial lenders will provide lines-of-credit on an unsecured basis provided the company is creditworthy, and the financials support the facility.

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Details of a Line of Credit

  • Interest Rates: 3-7.5%
  • Terms: 1-5 years
  • Line Amounts: $250,000 – $250,000,000
  • Time to fund: 30-60 days
  • Repayments: Monthly
  • Collateral Required: Yes and No
  • Time in Business: Start-up – 2+ years
  • Previous Loans Outstanding: Yes
  • Industries Funded: Most
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    Cons of a Line of Credit

  • Can be funded within 2 weeks
  • The line functions line a revolving credit facility much like a credit card
  • You do not pay interest on unused fund like that of a term loan
  • Lines of credit are typically interest only unlike a term loan that is always a principle and interest loan
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    Cons of a Line of Credit

  • Interest rate on lines of credit will be higher than a term loan and the interest rates are typically adjustable
  • Lines of Credit will need to be in first lien position on the business UCC filing statement and results in a blanket lien on all business assets such as A/R, Inventory, and Equipment
  • Most lender will ask for Yearly tax returns to keep line open
  • Some lender charge .25% fee every year due to the cost associated with maintaining and monitoring the Line of Credit
  • Lines of Credit are subject to a lenders discretion and should your business weaken they could call the loan
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