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Line Of Credit

How does a line of credit work?

A business line of credit works like a credit card. It gives your business access to a pool of funds, up to a limit.
You can withdraw funds when needed and you only have to pay interest on that amount, not the total amount available. Some lines of credit expire after a set time, while others can be revolving. With a revolving line of credit, you can reuse the funds once you’ve repaid them, all without having to reapply.

Example of a line of credit

A bank gives you a line of credit with a limit of $50,000. You withdraw $10,000 to buy inventory. You’ll only pay interest on the $10,000 and can still use the remaining $40,000 if you want. You then need $5,000 for new shop fittings. You can withdraw that before you’ve paid back the $10,000. Interest is charged only on whatever amount you’ve borrowed.

What are the requirements to get a business line of credit?

Typically, lenders require that you be in business for a minimum of six months before applying for a business line of credit. Lenders also want to see that you will be able to repay your loan, so they’ll usually require a minimum annual revenue of $25,000 or more, depending on the lender. The credit score requirements for a business line of credit vary based on your lender, but generally, it’s recommended that you have good credit before applying.

How much can I borrow?

Rates, terms and limits for business credit lines vary. The interest rates on lines of credit are generally lower than those of credit cards, with higher limits. They are based on the bank or financial institution’s prime rate, plus a premium. Interest is charged as soon as money is borrowed, so a business can set up a line of credit as a safeguard, with incurring interest. There may, however, be a setup fee and an annual fee to keep the credit available.
The amount you can borrow is typically based on accounts receivable and current inventory but usually less than $500,000. A secured business line of credit typically comes with a higher credit limit and lower rates.

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Important APICKLELY stuff

APICKLE is the trading name of Pickle Money Pty Ltd (ABN 94 633 969 454).
We will never sell your email address to any third party or send you nasty spam, promise.
All applications for credit are subject to lender credit approval criteria. Rates are determined by the lenders that are on our panel and are then defined by the circumstances provided by
the borrower.

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