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How Does A Business Revolving Line Of Credit Work

What Is a Business Revolving Line of Credit?

As business owners face increasing financial pressures, a revolving business line of credit is among the more desirable options for accessing fast working capital when needed. By giving companies the flexibility to control their financial runway, small business loans in NJ like these are increasingly becoming attractive forms of financing to many small business owners in the region.

This article explains the advantages of a revolving business line of credit and the steps and qualifications required to secure such a loan. The following sections will tell you everything you need to know about this popular financing option so you can decide if it is the best funding solution for your organization.

How Do Business Lines of Credit Work?

Business lines of credit offer several advantages that other financing options cannot. This loan type is particularly beneficial for business owners seeking a loan that allows quick access to cash when necessary.

A revolving line of credit can provide a short-term source of capital to help sustain a company during uncertain times and unforeseen circumstances. Moreover, many lines of credit are secured by collateral. This can give business access to larger sums of money than they have on their balance sheet.

Credit lines allow companies to draw funds when necessary. They can fill funding gaps brought about by short-term cash flow problems. By providing instant access to funds, your organization can continue operating and support its efforts to expand its footprint.

At a basic level, a business line of credit works in two stages. The first is the draw period, during which the borrower can access borrowed funds in smaller, periodic payments. This is usually followed by a repayment period, in which the borrower must repay the loan in fixed monthly principal and interest payments.

Lenders vary in the terms and conditions of their business lines of credit; some may convert the line of credit into a structured loan after the draw period ends. As such, familiarizing yourself with the terms of the loan agreement and understanding the fine print before entering into a contract is crucial.

Business lines of credit provide flexible access to capital for business owners, allowing them to draw funds in smaller, periodic payments to later repay them in full after the draw period ends. This loan product effectively serves as a short-term source of capital during times of uncertainty, making them a valuable tool for companies in need of fast access to capital. To get the most out of a business line of credit, remember to evaluate all the terms of the agreement and the proposed payment structure.

Key Stages:

  1. Draw Period: Borrower can access borrowed funds in smaller, periodic payments.
  2. Repayment Period: Borrower must repay the loan in fixed monthly principal and interest payments.

Business Revolving Line of Credit vs Term Loans


Business Revolving Line of Credit
| Term Loans
Flexibility High Low
Repayment Flexible, based on usage Fixed term
Interest Only on borrowed amount On entire loan amount
Use Case Working capital, emergency funds Specific investments like equipment

Business Revolving Line of Credit vs Term Loans

Business Revolving Line of Credit vs Term Loans

Business lines of credit and conventional term loans are two popular financing solutions for small companies looking to extend their investment costs beyond their immediate cash flow. Both have their advantages, but they also have distinct differences when it comes to their individual structures and requirements.

For start-ups and established companies alike, it can be difficult to get the required financing to fund advancements and investments during business expansion. Depending on the size of the investment and the cash flow of the business, one of two primary loan types – business lines of credit or conventional term loans – may be used.

A business line of credit is a flexible product whereby an agreed-upon value is offered to the small business owner, who can later draw from it on demand within their pre-agreed limit. You’ll only make repayments on the borrowed portion, with interest payable only when funds are owned. Business lines of credit often provide quick access to working capital loans in New Jersey, which can be critical for cash-flow management.

Conventional term loans, on the other hand, offer an agreed amount of money to the small business owner, who then pays back the loan over an established term. Lenders charge interest from the beginning of the term through the remaining life of the loan. These loans are most often used as a one-time financing solution for a specific purpose, such as purchasing equipment or covering business expansion costs.

Now that we’ve covered the basics, let’s delve further into the unique benefits of these different financing options and examine which one may be the best for your particular applications.

Business Revolving Line of Credit vs Invoice Factoring


Business Revolving Line of Credit
Invoice Factoring
High Moderate
Flexible, based on usage Based on invoice payments
Only on borrowed amount Fees charged by factor
Use Case
Working capital, emergency funds Immediate cash flow


Business lines of credit and invoice factoring are two popular forms of business financing that small business owners can use to strengthen their finances. Lines of credit are flexible instruments that allow a business to borrow and repay funds as needed, while invoice factoring uses outstanding invoices to supply immediate working capital. Both options have their own unique benefits and drawbacks depending on the business’s current financial situation.

Credit lines are ideal for businesses that need consistent access to a set amount of working capital. With a revolving line of credit, a company will be approved for a certain amount and can withdraw at any time up to the maximum credit limit. Typically, a line of credit has two rates. The first is the “draw rate.” You use this when you withdraw the funds, while the “commitment rate” is the rate charged when funds are borrowed but not withdrawn.

Credit lines require regular payments until the balance is reduced to zero, at which point the line is ready to use again. These revolving lines of credit can provide an ongoing source of capital for a business as long as the payments remain current and the company doesn’t exceed its approved line limit.

Invoice factoring, on the other hand, is a type of finance solution for businesses with a consistent stream of invoices. Instead of relying on borrowing from a third party, factoring allows companies to leverage their pending invoices to receive immediate working capital.

Once an invoice is sold to a factoring company, the business will receive an initial cash advance of around 85 to 90 percent of the invoice value and the remaining balance once the customer pays the invoice. It’s a quick and easy way to get paid upfront, and factoring can provide an unlimited source of working capital as long as the business generates enough monthly invoices.

When comparing business lines of credit versus invoice factoring, you’ll have to look carefully at the benefits and drawbacks of each loan. Business lines of credit can be beneficial for businesses that need consistent access to funds but may not have substantial collateral to offer. However, lines of credit often require higher credit qualifications, which can reduce the number of business owners that qualify.

Invoice factoring is attractive to business owners that can’t get a loan or line of credit due to their FICO score, as the factor purchases the invoices outright. This is, of course, in contrast to lending the business money to secure the stock. On the downside, invoice factoring can be expensive since the factor will charge a fee for their services, and businesses with a very slow accounts receivables cycle won’t benefit from the quick cash advances offered by invoice factoring.

Knowing the key differences between business lines of credit and invoice factoring will only enhance your chances of getting approved for the right business loan product and ensure that you do not agree to terms that fail to provide maximal benefit.

Business Revolving Line of Credit vs Merchant Cash Advance



Business Revolving Line of Credit

Merchant Cash Advance

High Low
Flexible, based on usage Percentage of future sales
Only on borrowed amount Can be expensive
Use Case
Working capital, emergency funds Short-term operating costs


When small business owners need quick financing to cover short-term operating costs, they have two main options: business lines of credit and merchant cash advances (MCAs). Each type of loan has advantages and drawbacks. This is why understanding the difference between them as you decide which of the two will be best for your needs is crucial.

A business line of credit provides access to a specified amount of money that can be borrowed, repaid, and borrowed again as needed. A lender typically sets the maximum loan amount, and interest is only accrued when the balance is not paid in full each month. This way, the repayment terms remain flexible, giving you optimal control over how you leverage the funds. This customizability factor means that business owners can access funds quickly. Nonetheless, borrowers must maintain their creditworthiness to continue using their line of credit without the risk of losing it.

A merchant cash advance (MCA) is a type of loan typically provided to business owners by online lenders. The creditor will advance a set amount of money to the borrower in exchange for a percentage of their future sales. The business then repays the loan according to its sales. This means that the payments can vary depending on how much money the company makes each month.

The biggest advantage of an MCA is that it often entails a fast approval process. Merchant cash advances can be a great option for businesses that do not have a long credit history. One downside, though, is that the repayment terms can be more expensive than a business line of credit.

A business line of credit will generally come with more flexible payment terms that are easier to manage. However, MCAs can provide expedient access to financing and may be more suitable for businesses that do not have strong credit. Ultimately, the choice between the two almost always boils down to the individual needs of the business owner. It’s, therefore, important to look at prospective loans from all angles before making a final decision.


How to Apply for a Business Revolving Line of Credit in New Jersey


How to Apply for a Business Revolving Line of Credit in New Jersey

To be approved for a business line of credit, lenders typically evaluate several qualifications including:

  • Time in business – At least two years is ideal but some lenders may be more flexible.
  • Personal and/or business credit scores – Credit score requirements can vary greatly, but personal credit scores are often required to be between 620-650 and banks sometimes require scores of 680-700 or higher.
  • Revenues – Bank and financial statement receipts and/or tax returns will be used to confirm revenue.
  • Business entity – Some lenders will not lend to sole proprietors, so considering setting up an LLC, S Corp, or C Corp could be beneficial.
  • Secured collateralMost business lines of credit are unsecured loans, meaning you won’t need to pledge personal or business assets such as equipment or real estate to qualify. However, in some cases, lenders may offer secured lines of credit or require collateral.

For New Jersey business owners, financial security and sustainability means having access to the right working capital solutions. Alternative lenders like New Bridge Merchant Capital offers a full suite of business lending products that are customizable to meet the unique needs of your business. By partnering with New Bridge Merchant Capital, you’ll not only start taking the steps to secure critical funding, but you’ll also have access to dedicated assistance from a team of seasoned lending consultants with decades of combined experience.

You can apply for a business line of credit to purchase inventory, expand product lines, or cover your operating costs. This type of credit also provides a safety net, especially during a financial shortfall, giving companies the flexibility to manage their operations more effectively.

Where to Apply for Small Business Loans in NJ

New Bridge Merchant Capital’s business lines of credit can be designed to fit each business owner’s unique situation. Furthermore, our revolving lines of credit come with a simple application process and a fast decision. These credit lines allow clients to take advantage of flexible repayment options and competitive terms.

We encouraged New Jersey business owners to explore New Bridge Merchant Capital’s full suite of lending products. Contact a senior business lending consultant now at 844-228-0593 for additional information and an obligation-free quote. New Bridge Merchant Capital is ready to provide you with expert guidance and advice on how to access and utilize business loan products to help your organization meet its revenue and strategic growth objectives.

Work With a Leading Commercial Lender

At NewBridge Capital Solutions, our loan products can help businesses of all sizes. With our exceptional customer service and reputable funding, we have become a trusted leader in the commercial finance industry. If you want to apply for a term loan that can provide working capital for your business, make sure to contact us.
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