Long Term Line of Credit
Flexible access to capital on a long term schedule. Only pay interest on the amount drawn and draw the same funds again after you've repaid them.
A long-term business line of credit is a reliable financial tool that provides businesses with ongoing access to capital for supporting growth, stability, and business resilience over time.
Offered by a variety of lenders, a long-term business line of credit allows companies to borrow up to a pre-set limit and only pay interest on the funds used. This versatile financing mechanism can be used to meet a variety of business needs, from funding long-term projects to managing cash flow, covering unexpected expenses, or taking advantage of growth opportunities.
What Is a Long-Term Line of Credit?
A long-term line of credit is a financing option that provides businesses with continuous access to funds over an extended period, allowing for flexible borrowing up to a predetermined limit.
This form of credit is revolving, meaning businesses can borrow, repay, and borrow again up to the established credit limit. It is considered ‘long-term’ due to the extended period in which the credit line is available, typically several years. This time frame is advantageous for businesses, offering the financial flexibility to plan and execute long-term strategies or investments.
Long-term lines of credit offer considerable benefits to businesses. They provide a cushion to handle unforeseen expenses, aid in smoothing out seasonal cash flow inconsistencies, and facilitate seizing growth opportunities when they arise.
Unlike a traditional loan, a long-term line of credit allows businesses to pay interest only on the funds drawn rather than the total credit limit. This characteristic makes it a cost-effective option for many businesses, offering financial resources without overwhelming costs.
Pros and Cons of a Long-Term Line of Credit
| Pros of a Long Term Line of Credit | Cons of a Long Term Line of Credit |
| Flexibility: You can use funds as needed up to your credit limit, making a long-term line of credit an excellent tool for addressing varying cash flow needs. | Potential for Overspending: The flexibility and accessibility of a long-term line of credit could lead to overspending if not managed carefully. |
| Interest on Drawn Amount Only: Interest is charged only on the amount used, not the total credit limit. This can make it a cost-effective choice. | Variable Interest Rates: Rates on lines of credit are typically variable, meaning they can rise over time and increase the cost of borrowing. |
| Build Credit History: Regular use and timely repayment of a line of credit can help build your business’s credit history. | Requires Discipline: It takes financial discipline to manage a line of credit effectively, ensuring it doesn’t lead to over-indebtedness. |
| Potential for Higher Credit Limits: Compared to credit cards, a line of credit often offers a higher borrowing limit, providing more substantial financial support. | Fees: There can be fees associated with a line of credit, including annual fees, maintenance fees, or withdrawal fees. |
Long Term Line of Credit: Loan Amounts, Rates, and Terms
A long-term line of credit offers flexibility that can be pivotal to a business’s financial strategy. But to make the most of this financing option, understanding key features like loan amounts, interest rates, repayment schedules, and associated fees is essential.
Loan Amounts
Loan amounts in a long-term line of credit can vary widely based on your business’s financial health, credit history, and the lender’s policies. Typically, lenders offer lines of credit ranging from $10,000 to over $1 million. This range caters to various business needs, providing ample flexibility.
Interest Rates
Interest rates on long-term lines of credit are usually variable, meaning they can fluctuate over time. These rates are influenced by several factors, such as the prime rate, your business’s financial status, and your credit history. While rates can vary, they commonly range from 8% to 18%.
Repayment Schedules
The repayment schedule for a long-term line of credit is typically flexible. Generally, minimum monthly payments are required, including a portion of the principal amount borrowed and any accrued interest. However, you can choose to repay more than the minimum, allowing for quicker balance reduction.
Fees and Charges
Long-term business line of credit fees include:
- Annual Fees: Some lenders charge an annual fee for maintaining the line of credit. This fee can vary but is often a small percentage of your credit limit.
- Origination Fees: These are one-time fees charged when you first open the line of credit. They are often a percentage of your initial credit limit.
- Maintenance Fees: Some lenders charge a fee to keep the line of credit open, even if you’re not actively using it.
- Withdrawal Fees: You may be charged a fee each time you draw funds from the line of credit.
- Late Payment Fees: If you fail to make your minimum payment by the due date, you may be subject to a late payment fee.
- Over-limit Fees: If you exceed your credit limit, some lenders charge an over-limit fee.
How Can Businesses Use a Long Term Line of Credit?
Businesses can use a long-term line of credit in the following scenarios:
Business Expansion: If you’re planning to open a new location, launch a new product line, or expand into new markets, a long-term line of credit can provide the necessary capital.
Inventory Management: Seasonal businesses may find a long-term line of credit useful for stocking up on inventory ahead of peak sales periods.
Cash Flow Smoothing: During periods of irregular cash flow, a long-term line of credit can be used to cover operational expenses like payroll, rent, or utilities.
Debt Consolidation: If you have multiple high-interest debts, a long-term line of credit could potentially be used to consolidate these debts into a single, lower-interest obligation.
Emergency Fund: Unpredictable circumstances like a global pandemic or natural disaster could lead to unexpected costs. A long-term line of credit can serve as an emergency fund in such cases.
How to Qualify for a Long-Term Line of Credit?
Time in Business
1+ Year in Business
Annual Revenue
$500,000 in Annual Revenue
Credit Score
600+ FICO
How to Apply for a Long Term Line of Credit
The long-term line of credit application process is:
- Start with the Online Application: Fill out the short online application form on the National Business Capital website. This should take less than 5 minutes to complete.
- Connect with a Lending Specialist: After submitting the online application, you will be connected with a lending specialist. They will provide guidance and help you prepare your application for submission.
- Prepare Your Application: Gather all required documents and information, such as financial statements, tax returns, and your business plan. Your lending specialist will provide a checklist to ensure you include everything necessary.
- Submit to Various Lenders: National Business Capital will then submit your application to various lenders within their 75+ lender marketplace. This step saves you time and effort as you don’t have to apply to each lender individually.
- Review Offers and Select the Best One: Once you receive offers from lenders, you can review them with your lending specialist. They will help you understand the terms and guide you to select the best one for your needs.
- Maximize the Value of Your Financing: The team at National Business Capital doesn’t stop at securing your loan. They offer ROI guidance and strategies to help you maximize the value of your financing.
Remember, National Business Capital is committed to establishing long-term financing relationships with clients, assisting with future capital needs after the initial transaction. Our Business Finance Advisors can help you navigate through the process and secure the most money you qualify for.
Frequently Asked Questions
How long does the application process typically take?
The application process time can vary based on a number of factors such as the complexity of your financial situation, the response time of lenders, and the amount of credit you’re seeking. However, with National Business Capital, the initial online application should take less than 5 minutes to complete. After that, you can expect a response from potential lenders within a few business days.
What documentation is required to apply for a long-term line of credit?
Typical documentation for a long-term line of credit application includes financial statements, tax returns, a business plan, and other relevant business documentation.
Can I use a long-term line of credit for personal or business purposes?
A long-term line of credit is generally intended for business purposes. It can be used for a wide range of business needs, including expansion, inventory, and even debt refinancing. Business lines of credit should not be used for personal use.
How is the interest calculated and charged on a long-term line of credit?
Interest on a long-term line of credit is typically calculated on the average daily balance and charged monthly. This means you only pay interest on the portion of the line of credit that you’re actually using.
Are there any alternatives to a long-term line of credit that I should consider?
Alternatives to a long-term line of credit may include short-term lines of credit, business credit cards, term loans, or equipment financing, among others.
