Even prosperous small businesses periodically require additional cash. However, handling the application process to obtain funding from traditional banks or alternative lenders can distract you from your business. A viable solution to this difficulty is a line of credit. That allows you to borrow again and again whenever you need a boost in the capital. The following will help you determine which type of line of credit will work best for your company.
Line of Credit Basics
A revolving line of credit provides your business with a flexible financial arrangement. Instead of receiving a lump sum as you would with a traditional loan. You obtain access to an amount of funding. That funding is predetermined by the lender that you can draw on whenever your company needs it. After you pay back what you have borrowed, you can draw on the same amount again. However, there may be fees involved in maintaining the line of credit. You only pay interest on the funds your business borrows. This type may be either secured or unsecured.
Secured Lines of Credit
A secured line of credit is generally easier to obtain because you put up company assets as collateral. This reduces the risk to the lender. With a secured line of credit, you may be able to obtain better terms, lower interest rates, and a higher credit limit. Assets that lenders may accept include real estate, equipment, inventory, vehicles, financial securities, and accounts receivable.
Unsecured Lines of Credit
Many businesses are unwilling to put valuable company assets at risk. Or they may not yet have acquired assets that lenders will accept as collateral. Under these circumstances, you may be able to obtain an unsecured line of credit. Keep in mind, though, that the fees and interest rates may be higher and the credit limit may be lower. It could be required to offer your guarantee. Ensuring you will pay back the borrowed funds if your business cannot.
For more advice on obtaining a business line of credit, contact Capital Finance Partners.