Line of credit calculator

Understanding business line of credit

A business line of credit is like a fuse between a loan and a credit card for businesses. It’s a flexible option for financing that gives businesses access to funds up to a set credit limit. Unlike a traditional loan where the entire amount is disbursed at once, a line of credit allows you to take out funds as needed. 

Then, interest is only charged on the amount you use, making it a great choice for managing cash flow, covering unexpected expenses, or financing short-term business needs. Many times, these are used to bridge gaps between receivables (incoming funds) and payables (what needs to be paid), so you keep smooth daily operations. 

What is a line of credit calculator?

The Swoop line of credit calculator is an online tool that helps you estimate the monthly payments as well as how long it will take to pay off the credit line used. Our aim is to help you understand what it takes to pay back your line of credit debt before it’s used. 

How do I use a line of credit calculator?

Start by entering your balance (current or estimated), then your interest rate and your payoff goal, which is the number of months you’d like to pay it off in. Finally, enter your monthly payment, and the ‘your results’ will populate.

From here you can see what your projected monthly payment should be to reach you payoff goal as well as how it compares to your current monthly payment. 

How do I calculate interest on a line of credit?

The easiest way is to see your terms and conditions provided by your lender but to do it by hand you’ll need access to a few things including; you interest rate, the total principal banace and how long you’ll take to repay. 

Here’s how it works:

1. Determine the daily interest rate by dividing the annual interest rate by 365. For example, if the annual rate is 8%, the daily interest rate would be 0.0219%.
2. Calculate the daily interest by multiplying the borrowed amount by the daily interest rate.
3. Find the total interest by multiplying the daily interest by the number of days the amount is not repaid (outstanding).

So if you borrow $50,000 at 8% annual interest for 30 days, the interest would be about $328.77. 

How are the repayments calculated?

Repayments on a line of credit typically include both principal and interest. Each repayment reduces the outstanding balance, and since interest is only charged on what you owe, your future payments decrease as you pay down the balance.

For example, if you have a line of credit with a limit of $100,000 and borrow $50,000, your monthly repayment will cover the interest on the $50,000 plus any principal amount you choose to pay. If you pay $10,000 toward the principal, your interest for the next month will be calculated on the remaining $40,000. This repayment flexibility helps manage costs while keeping your borrowing within your financial means.

Can I use this to work out how much I can afford to borrow on a line of credit?

No, but you can use the calculator to see how long it will take you to pay off a line of credit, which is just as helpful. To estimate how much you can borrow on a line of credit, you would need to speak with a lender. Each has its own ways of determining who is eligible for which amounts. Things to consider checking for yourself include:

1. Your business credit score
2. Your debt to income
3. Your previous years of tax returns for gross income
4. The average of your industry

5 types of line of credit lenders to consider

1. Traditional banks can offer competitive interest rates and large credit limits but require a heavy amount of documentation and a strong business credit history (690+ typically).
2. Credit unions are community-focused lenders that may offer lower rates and personalized service but have limited availability in certain locations.
3. Online lenders are known for fast approvals and flexible terms but may have higher interest and associated fees.
4. Alternative financing platforms can connect borrowers to various lenders and provide tailored credit solutions based on your business profile.
5. Government programs are not uncommon in some countries. These are government-backed lenders that provide lines of credit with lower rates and longer repayment terms to support small businesses.

4 Types of lines of credit to consider

1. A secured line of credit is backed by collateral such as real estate, assets, or inventory, offering lower interest rates.
2. An unsecured line of credit requires no collateral but comes with higher interest rates since it takes on increased lender risk.
3. A business credit card is not exactly a traditional line of credit but offers a revolving line of credit used for everyday expenses, often with rewards or cashback features. 
4. A supplier credit line may be offered by some suppliers, allowing businesses to purchase goods on credit with repayment terms that suit the business cycle.

Alternative funding options for your business

If a line of credit doesn’t fit your business’s needs, consider alternative funding options. For starters, equity financing allows you to raise capital by selling shares in your business. Then invoice financing lets you borrow against unpaid invoices to free up cash flow. 

Another option is peer-to-peer lending platforms that can provide fast loans with flexible terms. Additionally, crowdfunding is a viable option for businesses with innovative products or community-driven missions. 

Next steps on getting a business line of credit

After you’ve taken a look at your finances and compared them to our calculator estimates, it’s time to prepare for an application. Here’s the steps to get on your way to a business line of credit. 

1. Evaluate your business needs: Determine how a line of credit would support your business goals. The lender will likely want to know what plans you have for the funds at the start of the application and it’s a great proactive measure to have an answer ready. 
2. Check eligibility and requirements: Review your credit score and financial history. Plus don’t be afraid to ask before you apply what are the averages applications coming in with so you know if you stand a decent change at gaining approval.
3. Prepare your business and personal documentation: Gather financial statements, tax returns, and bank summaries for both your personal and your business side. Unless you’ve been in business for quite some time and have a large amount of cash and non-cash assets on hand, they will likely request both your personal and business information. This is to make sure you have the means to repay from either avenue.
4. Compare lenders: Look for favorable terms, interest rates, and credit limits from a potential lender. There’s no shame in shopping around and seeing what the competition has to offer. It will come in handy for the final step.
5. Apply and negotiate: Submit your application and negotiate the best terms based on your business’s financial standing. The first offer may not be their best and you should have no fear of being told the words ‘no’ for asking. It’s much better to ask now and get rejected instead of regretting not asking at all.

How Swoop can help

At Swoop, we simplify the process of finding the funding avenue for our users and this includes securing the right business line of credit. Our platform connects you to a wide range of lenders, allowing you to compare terms, interest rates, and credit limits in one place. Whether you need short-term financing or a long-term revolving line of credit, Swoop’s solutions help you secure the best funding option. 

Use our platform today to explore customized funding opportunities and keep your business moving forward.