March 30, 2022

What is a business line of credit?

What is a line of credit? Is it right for you?

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After two consecutive, record-breaking years of business creation in 2020 and 2021, Intuit predicts that roughly 17 million new businesses will be created in 2022, continuing this trend. When business owners seek funding, they usually turn to traditional banks for a loan. 

Those aware of alternative financing options will look for angel investors, crowdfunding, asset financing, or invoice financing options, among others. Something that should not be overlooked is taking out a line of credit. This can be a valuable option for any business when you need access to fast working capital

What is a line of credit?

A line of credit is a borrowing option with an approved credit limit extended by a financial institution that can be drawn from at any time, repaid, and then borrowed again. A line of credit provides businesses access to working capital quickly and is used to support day-to-day operations and expenses, supply inventory, cover marketing and advertising, or fund growth among others. 

APR percentages vs. flat fees

In exchange for these funds, lenders will charge an interest rate, calculated as an Annual Percentage Rate (APR). In short, an APR is the interest rate on the amount borrowed, plus any additional fees, calculated over an entire year and is expressed as a percentage. 

For example, if you borrow $10,000 for a $100,000 line of credit within a month, with a 12% APR, your interest would be $100 on top of the $10,000 borrowed. 

On the other hand, a Flat Fee is a fixed charge a borrower pays a lender. Some lenders will charge a flat fee meant to make your interest rate seem lower, but you can end up paying 50% or higher interest annually. Flat fees are usually not as transparent as an APR. 

For example, if you borrow only $10,000 for a $100,000 line of credit within a month, with a 12% flat fee, your interest would be $1,200 on top of the $10,000 borrowed. 

Revolving vs. non-revolving credit

A non-revolving line of credit is what a traditional bank provides. Funds are distributed in full and on a one-time basis where you start paying interest immediately. Once the funds are repaid, plus interest, the account is closed. 

On the other hand, a revolving line of credit means that once payment is made towards the loan, the borrowing limit replenishes, and you may borrow up to that limit again. It also remains open until the lender or borrower closes the account.

Why a line of credit?

Revolving lines of credit offer more flexibility than a traditional, non-revolving line of credit and are typically a better option for smaller and growing businesses. You can borrow up to the credit limit and repay multiple times until you reach your credit limit. You can either choose to repay immediately or over time, depending on your circumstances. The application process is also more flexible, giving you quick access to capital when you need it, and interest rates can be negotiable depending on the lender. 


For new, emerging, or struggling businesses, you may be tempted to look for the easiest and fastest lender to secure funding. Unfortunately, like with any industry, there are risks of scams and predatory lenders that may be waiting to take advantage of you.

  • Payment: Make sure you avoid red flags like unusual or untraceable payment methods. This can include gift cards, prepaid debit cards, or cryptocurrency required by lenders. Instead, they should ask for debit cards, checks, or wire transfers, among others.
  • MCAs: Merchant Cash Advances (MCAs) are technically not considered lenders. They provide funds in exchange for a slice of your future sales. MCAs can seemingly charge you a low flat fee in the beginning, but you may end up paying back around 50% or more of what you borrowed. And since they are not considered lenders, they are free from many regulations meant to protect borrowers.
  • “Guarantees”: Another example of what to avoid is any “guarantees”. This is when lenders promise low flat rates with little information about your business and its finances. After reading a confusing and seemingly never-ending agreement, you walk away with excessive interest rates and predatory lending policies.
  • Fees: Look for any hidden fees that don’t seem quite right, like underwriting fees, service fees, line fees, admin fees, or unused or undrawn fees. Additionally, don’t fall for any “advance-fee loan scams” where a scammer will promise to get you a loan and charge you an up-front processing or application fee, then disappear with your money. 

How Ampla modernized the line of credit

Ampla’s focus is to change the current lending climate by equipping companies with the capital to grow their business. Their lending strategy offers lower APRs, higher credit limits, and non-dilutive funding with no hidden fees. Ampla does this by looking at the business as a whole to provide more capital at a lower cost than competitors.  With Ampla, you will never pay more than your APR. Their tech-enabled, grow-with-you business model is made for eCommerce, retail, and omnichannel businesses. So as your business grows, so does your credit limit. 

A revolving line of credit can offer a flexible and non-dilutive funding alternative for your growing business. If you want to learn more about how Ampla’s modern and more transparent approach to a line of credit can help you fund your business, chat with them today and get a quote within 48 hours. 

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