Friday, February 12, 2016

Short-Term Lines of Credit: What You Need to Know

Are you seeking a short-term line of credit for your business to get over a cash flow crunch or handle unexpected expenses? Getting a line of credit from a business bank can be time-consuming and difficult—you’ll need to fill out a pile of paperwork, and probably put up some collateral. If you need a line of credit quickly, consider working with an alternative lender like OnDeck or Kabbage. Here’s a closer look at the short-term lines of credit available from each.



OnDeck offers lines of credit of up to $100,000, with a quick and easy approval process. Just like with a traditional bank line of credit, with an OnDeck line of credit you don’t need to start repaying until you actually draw from the credit line. Afterwards, fixed weekly payments automatically get deducted from your business bank account.

There’s also a $20 monthly maintenance fee. However, if you draw $5,000 or more from your credit line within the first 5 days of opening your account, that fee is waived for 6 months. There are no fees to draw money, and you can pay the balance back early with no prepayment penalty.

To qualify, you must:

  • Have been in business for at least 1 year
  • Have at least $200,000 in gross annual revenues
  • Have a personal credit score of 600 or higher, if you’re the majority business owner

Interest rates typically range from 13.99% to 36% APR and get determined by OnDeck based on your business and personal credit scores, as well as on an assessment of your business’s cash flow.



Kabbage offers lines of credit up to $100,000, and its approval process is even faster and easier than OnDeck’s. There’s no minimum requirement for your personal credit score—just provide some basic business information and give Kabbage access to those accounts, like QuickBooks, Square, or your business checking account, that provide an overview of your cash flow.

Kabbage reviews this data and determines whether you qualify for a 6-month or 12-month term. (If you want the 12-month term, you’ll need to get a credit line of at least $5,000.) Once approved, you can draw cash as often as once a day, with no repayments until you actually draw money.  

To qualify, you must:

  • Have been in business for at least 1 year
  • Have at least $50,000 in gross annual revenues

Once approved, you’ll pay a fee of between 5% and 12% of your chosen loan amount. Every month, you pay back one-sixth of the total loan (if you have a six-month loan) or one-12th of the total loan (if you have a 12-month loan)—plus that monthly fee. You can repay the loan early with no penalties.

Kabbage vs. OnDeck

Which alternative lender offers a better line of credit for your business? That depends on your situation and your needs. Here are their main differences:

  • Fixed monthly payment (Kabbage) vs. fixed weekly payment (OnDeck)
  • $50,000 minimum annual gross revenues (Kabbage) vs. $200,000 minimum (OnDeck)
  • No minimum personal credit score (Kabbage) vs. minimum 600 personal credit score (OnDeck)

If you business has lower revenues or you have a lower credit score, Kabbage might be best for you. Ditto if you prefer making a fixed payment just once per month—like if you own a B2B company that only bills customers once per month and gets paid in “chunks.”

If your business is more established with higher revenues or if your income is more consistent—a retail or restaurant business with a lot of small but steady sales, for example—then you might prefer smaller weekly payments to having one big payment due each month.

Don’t choose your lender based on this alone. No matter what type of financing you’re seeking, always compare the cost of the capital—which includes interest rates, fees, and penalties.

Traditional Lines of Credit

How do lines of credit from OnDeck and Kabbage differ from traditional lines of credit?

  • If your business is relatively new and doesn’t have a well-established credit history, or if your personal credit score is less than stellar, getting a line of credit from a traditional bank can be very difficult. Both OnDeck and Kabbage have more lenient requirements for approving lines of credit.
  • If you’re in a hurry and/or simply don’t like dealing with paperwork, a line of credit from OnDeck or Kabbage can be much more appealing than approaching a traditional bank. Applying for a line of credit at a bank can take weeks and involve lots of paperwork, like financial statements and tax returns. Not only is the application process at OnDeck and Kabbage fast and easy, but approval is also quick.
  • Of course, there’s a trade-off for these benefits: lines of credit from OnDeck or Kabbage are more expensive than those from banks. But if you’re willing to pay for speed and convenience, either company can be a good option.

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