If you need a business line of credit for your startup or growing business, you have come to the right place. This post outlines the industry’s top lenders advice on how to secure a business line of credit to start, fund, and grow your business.
Nav: Business Line of Credit
According to Nav’s post: Small Business Line of Credit: How to Choose the Right Option: A small business line of credit helps entrepreneurs maintain a constant supply of cash to keep up with recurring expenses and the ebb and flow of seasonal changes in business. For the 50% of businesses owner who have experienced cash flow problems, a small business line of credit can be a necessary lifeline.
You may be thinking: “My business is profitable, we don’t need additional cash reserves.” But many businesses with and without cash flow issues keep a line of credit handy for unexpected growth or expansion opportunities. A business line of credit is a flexible, often low-cost way to cover short-term financing needs regardless of the nature of those needs.
What is a secured vs. unsecured business line of credit?
A secured line of credit is a line in which the borrower puts up collateral as a security deposit on the line of credit. Putting up property as a form of collateral is common, but this could also be other items owned by the business, such as equipment or inventory.
Secured lines are may be preferred over unsecured lines by both lenders and borrowers. The lender is taking on less risk, so they will usually grant a higher credit maximum at a lower rate for secured lines. New businesses or businesses with poor business credit might only qualify for a secured line of credit because of the inherently higher risk.
In contrast to a secured line, an unsecured business line of credit does not require collateral assets. Unsecured lines of credit are more expensive because the lender assumes higher risk. Credit cards are a type of unsecured line of credit. Businesses with many years under their belts and stellar business credit reports are more likely to qualify for unsecured business credit lines at reasonable rates.
Credit Karma: Line of Credit Advice
How does a business line of credit work?
A business line of credit allows a business to borrow money, repay it and borrow again, up to the credit limit — similar to a credit card.
Business lines of credit aren’t all alike. Some are offered by banks. Others are offered by nonbank finance companies. Some are secured, which means they may require collateral. Collateral may take the form of business assets, commercial property, personal property (generally your home) or certificates of deposit. Other lines are unsecured, which means no collateral is required.
A line of credit comes with a credit limit, which is the maximum amount that you can borrow from it at any one time. Unlike a credit card, the line can incur interest as soon as you use any portion of the funds. The interest rate you’ll be charged for the amount you borrow is usually lower for a credit line than a credit card.
Before you apply for a business line of credit, research the terms, compare offers and read the fine print. Consider factors such as:
- Credit limit
- Interest rate
- Repayment period
- Annual review and renewal
- Requirements to be approved
- Any special perks or rewards
Explore Your Options Now
Explore your business funding options today!