Im writeing a 11 page paper for school on marketing and finacing. Im not that familar with financing. Can someone explain to me some of the terms like line of credit and APR. Also– What is an average rate percentage for a small business loan of 0,000. Thanks
A line of credit is any credit source extended to a business by a bank or financial institution. It can be in different forms of credit, like as a cash credit, overdraft, demand loan, export packing credit, term loan, etc.
APR is the annual percentage rate that you pay on a loan.
On a credit card, it is the amount you will pay in interest charges per year. In its most simplistic form, you can figure out how much you pay per day, take the APR divided by 365.
Unfortunately, the true amount you will pay a credit card company is more apt to compound the cost of interest, meaning the cost of having credit will be greater than just a simple interest charge on your purchases, particularly if you do not pay off your balance in full each month because you will be charged interest on any interest charges that are not paid in the preceding month, and any penalties and fees will be in addition to the annual interest calculation.
I don’t know if this is going to get you to 11 pages, but even though you could look it up, I can point you in the right direction.
Line Of Credit is essentially a prearranged loan with some sort of limit. When a company needs money for short term (having too much cash is never a good idea), it can borrow against the line of credit quickly, since it is preauthorized. Individuals can have them as well, and people who think they may have the need (especially people with seasonal income) can set one up, usually with their house as collateral.
APR is Annual Percentage Rate — it is the interest that is payed against a loan.
It varies but a Business Loan of 150,000 has probably between 5 and 10% APR, depending on the credit history of the borrower and the term (length of time to repay) of the loan.
Dixie answered the question pretty well. Keep in mind what it sounds like shes trying to say towards the end is. Basically if you have a balance on a credit card and you make the minimum payment say $100.00 usually a very small amount of that payment is applied towards the balance. interest can consume nearly 90% if the payment. So it could take 35 years or more to pay off a credit card with just the minimum payments.
A line of credit is basically a pre-approved amount that you can use whenever you want. It is a loan only if you use it.
I have a line of credit Visa card. I can "borrow" up to a certain limit ($20,000 in my case) whenever I want. I pay interest on unpaid balances at the end of the month. Another line of credit I have works on a debit card, but the principle is the same. They have already approved my "loan" (this one is for $15,000), ready for whenever I choose to use it, if I do.
Businesses can have the same sort of thing. So, instead of trying to get a loan if they suddenly need money, they have a pre-set amount that they can use/borrow, whenever they want.
I do not know what an APR is. I also do not know what the rate would be for a business loan, as this would depend on the location, the type of business, the risks, and so on. A multi-zillion dollar business in good standing would get a better rate than a riskier venture, or a business without a long track record of success.