Revenue-Based Financing Part 3: Fintech Lines of Credit

“You can’t always get what you want, but if you try sometimes, you might just find you get what you need.”

— The Rolling Stones, You Can’t Always Get What You Want

Welcome to Part 3 of our series on revenue-based financing. Today, we’re exploring lines of credit (LOCs) from online providers—an essential funding option for small businesses looking for flexibility and faster access to cash than traditional bank products can provide. Fintech lines of credit offer quick approvals, flexible draw options, and a revolving credit structure, keeping funds available whenever you need them. Some of the major players in this category include:

• American Express Business Line of Credit

• BlueVine Line of Credit

• OnDeck Business Line of Credit

• Fundbox Business Line of Credit

• Headway Capital

• Idea Financial

General Attributes of Fintech Lines of Credit

While each provider has specific requirements and terms, most fintech LOCs share some general characteristics:

• LOC Amounts: Range from $5,000 to $300,000, depending on the business’s financial profile.

• Cost of Capital: Typically charged as a flat fee, generally between 4.5% and 20% of the draw amount.

• Term Length of Each Draw: Usually 3 to 24 months, with most providers offering 6- to 12-month terms.

• Payment Structure: Fixed payment amounts, which can help with budgeting and managing cash flow.

• Payment Frequency: Weekly or monthly, depending on the lender.

Other Common Features

1. Easier to Qualify For: Fintech LOCs typically have more relaxed qualification criteria than traditional bank lines, making them accessible to a wider range of businesses.

2. Quick Approvals and Funding: Applications are generally processed within 1 to 5 business days, making funds available fast.

3. Flexible Draw Options: Like a credit card, you can draw up to your credit limit, and repaid or unused amounts become available for future draws.

Sample LOC Deal

Let’s break down a sample offer for a fintech line of credit:

• Max Draw Amount: $100,000

• Draw Amount: $50,000 (initial draw)

• Term Length of Initial Draw: 6 months

• Cost of Capital: 8.2% flat fee

• Total Repayment: $54,100

• Monthly Repayment: $9,016.67

In this example, the business owner draws $50,000 from a possible $100,000 line of credit. The flat 8.2% fee brings the total repayment to $54,100, spread over 6 months with fixed monthly payments of $9,016.67. Each monthly payment increases the available credit, meaning that after each payment, an additional $9,016.67 becomes available to draw again if needed.

What Happens with an Additional Draw?

If the merchant decides to take out an additional draw while still repaying the original amount, providers might handle this scenario in a few different ways. Let’s assume that the balance on the initial $50,000 draw has been paid down to $30,000 at the time they take a second draw of $20,000.

1. Separate Amortization Schedule: Some providers will amortize the second $20,000 draw on its own separate 6-month schedule, while the remaining $30,000 from the initial draw continues on its original 6-month repayment timeline. This means the merchant will make two separate payments: one for the $30,000 balance and one for the new $20,000 draw.

2. Combined Balance and Reamortization: Other providers may combine both draws into a single balance of $50,000 ($30,000 remaining balance from the initial draw plus the new $20,000) and reamortize the total balance over a new 6-month term. In this case, the repayment schedule would be reset to cover the combined $50,000 balance with adjusted payments based on the new draw date and term length.

Knowing how a provider handles additional draws can help you manage cash flow effectively. Some businesses prefer the predictability of separate schedules, while others may benefit from the simplicity of a combined balance.

Why Fintech Lines of Credit Are Ideal for Small Businesses

Lines of credit are perfect for stabilizing cash flow during periods when revenues are lower or funds are tied up, such as in inventory or accounts receivable. For example, if you’re a retailer gearing up for a busy season, an LOC can provide the working capital needed for inventory, payroll, and operational expenses without disrupting cash flow. These lines of credit provide flexible, on-demand access to capital, making them ideal for businesses with recurring expenses or cyclical cash flow.

Comparing Fintech Working Capital Loans and Lines of Credit

In our previous post, we discussed working capital loans from online providers. Unlike a loan, where you receive the entire lump sum upfront, lines of credit allow you to draw what you need, when you need it. This flexibility is valuable, but it comes with a trade-off: a business may be approved for a smaller maximum line of credit than it would for a working capital loan.

Why? With a loan, the lender knows their exact exposure for the loan’s entire term, which allows for a higher maximum amount. With a line of credit, however, your behavior—how often you draw, the amount you draw, and when you draw—introduces unpredictability for the lender. So, don’t be surprised if you’re approved for a $50,000 line of credit but can secure a $100,000 working capital loan.

When to Choose a Loan

Working capital loans are better suited for:

• One-Time or Non-Recurring Needs: Examples include opening a new location, purchasing equipment, or investing in product development.

• Set Budgets: When you know exactly how much you need for a particular investment (e.g., “I need $500,000 to expand my medical practice with new patient rooms, equipment, and staff”).

• Longer Repayment Terms: Loans generally offer longer terms, making payments more manageable for substantial investments.

When to Choose a Line of Credit

Lines of credit are better suited for:

• Recurring Operating Expenses: Like payroll, inventory, or other ongoing expenses that keep your business running smoothly.

• Cash Flow Stabilization: LOCs are ideal for balancing cash flow when revenues are slower or when funds are tied up in inventory, purchase orders, or accounts receivable.

Choosing the right financing product depends on your business’s specific needs, the nature of the expenses, and your cash flow patterns. A one-time expense with a clear budget might be best handled with a loan, whereas a line of credit offers the flexibility needed for recurring or unpredictable cash flow needs.

Conclusion: Choosing the Right Financing for Your Business

Whether you go with a working capital loan or a line of credit depends on your cash flow, the nature of your expenses, and the flexibility you need. By understanding the structure and purpose of these products, you’ll be in a stronger position to make decisions that keep your business funded and stable. At BrokerFreeCapital, we’re here to arm you with the information to bypass middlemen, cut unnecessary costs, and get the financing you need—on your terms.

What’s Next: Part 4 – Deep Dive into Underwriting

In Part 4 of our series, we’ll dive into the underwriting process for revenue-based financing. We’ll cover what providers look for when they evaluate your business—revenue, cash flow, personal credit, time in business, industry risk, and more. We’ll also break down how these factors impact the size and structure of your offer, as well as the documentation you’ll likely need to provide.

Armed with this knowledge, you’ll be in a powerful position to bypass brokers who often inflate your costs with unnecessary fees. At BrokerFreeCapital, we believe in providing business owners with transparent information, helping you take control of your funding journey without middlemen. By understanding the underwriting process, you’ll gain the insights needed to secure financing directly and on the best terms possible—without paying for a broker’s “help” to get there.

Stay tuned to BrokerFreeCapital for more insights and tips to keep you fully in control.

Revenue-Based Financing Part 3: Fintech Lines of Credit

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