Startup Funding Espresso: Line of Credit

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Equity funding is just one source of funding for your startup. There are many others such as a line of credit.

A line of credit is a short-term loan from the bank to help smooth out cash-flow cycles.

Unlike a bank loan in which you receive an injection of funds, a line of credit lets you draw upon it when you need and pay it back when you can.  

The interest rate on a line of credit is substantially lower than credit cards and offer a higher borrowing limit than most credit cards.

However, the interest rates are often variable and not fixed.

A secured line of credit is backed by an asset, while an unsecured line of credit is not. An unsecured line of credit will come with a higher interest rate.

There are both personal and business lines of credit. Personal lines of credit are often secured by personal property.

For a business line of credit, the bank determines your credit limit based on the business assets and cash flow.

The bank determines the interest rate by adding the interest to a margin which is affected by your credit history, profitability, and business risk.

The line of credit is a useful tool for early-stage businesses to help with cash-flow issues. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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