Advantages of a Virtual Line of Credit vs. Revolving Line of Credit
It’s normal for every business to constantly face a shortfall in capital. To avoid any capital crisis that could threaten the survival of the business, it’s necessary to have access to cash on hand. A revolving line of credit and a virtual line both serve the purpose of acting as flexible sources of financing. However, the virtual line of credit takes the cake in terms of more flexibility, affordability, and reliability.
Read on to find out more about the pros and cons of a revolving line and how it compares against the virtual line.
Pros of a Revolving Line
- Ready Funds: A revolving line of credit avails an approved or a specified amount of funds available if and when the need arises for any reasons. The business can easily pay for bills, replenish inventory, and add to its working capital.
- Predictable Rates and Payback Terms: After the customer has been approved for a revolving line of credit, they will usually pay interest monthly on the credit balance owed. The rates applied are generally variable and depend on the client’s credit history and the lender.
- Repeated Use: Since it’s revolving debt, funds replenish as you pay off your balances. Borrowing after the first time doesn’t require being approved again.
Cons of a Revolving Line
- Inflexible Capital Amounts: A business is limited to the same approval amount for the long term after signing contracts. This can lead to trouble in case the business’ capital needs exceed the credit limit. In addition, a revolving credit limit significantly impacts the user’s credit utilization rate which in turn affects the credit score.
- Inflexible Rates: A lender also limits a business to the same rates for the long term after signing contracts. These rates also tend to be higher than traditional loans due to the convenience and flexibility of the credit line.
- Slow Approval Process: It can take weeks or months to be approved for credit as lenders want to be sure a customer isn’t a credit risk. With bad credit, it gets tougher to receive approval.
- Detailed Documentation: A lender often requires dozens of documents for approval. This is to confirm the credit history of the customer to check if they can reliably pay the balance before being advanced to another credit amount. There are also additional steps to take before applying for a credit line.
What a Virtual Line of Credit Offers
A virtual line of credit is similar to a revolving line in some key areas and quite different in others. Similar to a true revolver, a virtual line affords merchants a specified pool of funds that are available to them if and when the need arises. The recipient simply specifies how much they are interested in withdrawing, meeting an agreed-upon minimum withdrawal, and usually receives the funds within 24 hours of signing off on the transaction.
Unlike a revolving line, however, the virtual line product allows customers to negotiate more favorable funding amounts, rates, and terms once they’ve exhausted the initial amount and have a satisfactory payment history. This allows customers to build internal credit with the lender while also helping their overall business credit and lowering their cost of capital to boot.
Another attractive feature of the virtual line is the ease with which merchants can apply and receive approvals. While traditional banks and other lending institutions sometimes take weeks or months to approve businesses for revolving lines of credit while requiring dozens of documents, a virtual line can be secured within 48 hours and often requires nothing more than an application, a few months of business bank statements and some basic business financial statements. For business owners who value speed, efficiency, and convenience, a virtual line of credit can be the optimal working capital solution.
Get a Virtual Line of Credit to Meet Your Business’ Financing Needs
A virtual line of credit compared to a revolving credit line offers more value for a business that often faces urgent cash flow issues. Within a business day of signing contracts, funds are deposited in the business bank account, enabling the decision-makers to cover routine costs and focus on running the business, rather than securing resources. A virtual line is everything that a revolving line of credit is not; it does not charge an arm and leg for convenience and flexibility.
If your business could benefit from a line of credit or any other alternative financing solutions — or you would simply like to explore your options — don’t hesitate to submit your info through the Contact Us page or email email@example.com. Our team of funding specialists will be more than happy to help you go over all your options.