What Is a Business Line of Credit?
Selecting the ideal financial option for your business requires careful consideration. There are many competitive financing solutions, so you need to find the option that works for you. A popular option for flexible, short-term financing is a line of credit. Discover how you can enjoy the immediate funding you need through business lines of credit.
A line of credit is an offer for a specific loan amount with a flexible disbursal time and amount. In this way, a line of credit is very similar to a credit card. Both offer you a pre-approved amount for you to take out for short-term lending.
If your business is struggling with a cash flow issue, a business line of credit can temporarily boost your working capital and give you the leverage you need to increase productivity and sales. Your business line of credit can be either secured or unsecured. A secured line of credit uses an asset as collateral. When you apply for this type of credit line, you must put up real estate, machinery or even inventory as collateral. This allows your creditor to offer you a percentage of the total price because they can be confident in receiving full payment through your asset.
Unsecured lines of credit don’t require an asset as collateral, so you won’t have the additional risk involved. However, this means that your lender will be taking on more risk, so you can expect a higher interest rate, more stringent application or both.
Once you take out a line of credit, you can spend that money on any business expenses you need. The loan typically enjoys a competitive interest rate. However, like a credit card, if you miss a payment or are unable to pay it off in full in the allotted time, you can expect a significant increase in your interest rates.
Your line of credit may also be revolving. This means that you don’t have to take out the full amount and only use it once. Instead, just like credit cards, you can take advantage of this flexible financing as many times as you like until you reach your credit limit. Once the line of credit is paid off, you can access it again.
Enjoy this dynamic funding solution for any business expense. Whether you’re struggling to keep up with your monthly bills or need a working capital boost to achieve new sales goals, lines of credit are excellent options for many business owners.