Lines of credit allow you to finance your business by borrowing amounts of money as you need them up to a predetermined limit. Even businesses that have not yet established solid credit scores can qualify for this funding. Additionally, you only pay interest on the money you spend. Here are some things you need to know about lines of credit so you can determine if this option is right for your company.
Lines of Credit From Traditional Banks
Owners of small businesses often find it difficult to qualify for lines of credit from traditional banks. You have to come up with an enormous amount of paperwork, including registration and incorporation information, financial records, and business and personal tax returns. Banks also conduct yearly reviews after which business lines of credit are often reduced or canceled.
Lines of Credit From Alternative Lenders
Financial technology companies offer Internet-based alternatives to traditional bank lines of credit. These lenders are likely to look at other criteria rather than just credit scores so that businesses that banks would turn down may still qualify with these companies. You can strengthen your cash flow quickly with minimal paperwork.
Choosing the Line of Credit That Is Right for Your Business
To obtain a secure line of credit, you have to offer collateral in the form of business assets. This collateral may be accounted for receivables or inventory rather than real estate or equipment. Approval for unsecured lines of credit does not require collateral. However, unsecured credit lines are more difficult to obtain and have higher interest rates.
The Difference Between Personal and Business Lines of Credit
Personal lines of credit usually require collateral such as your home. These lines of credit can be used for business purposes, but if your company does poorly you could lose your house. Alternatively, secured business lines of credit use business assets as collateral. If you’re a real estate developer, a real estate line of credit is another option, but you need a high personal credit score to qualify.
For more advice on using lines of credit to grow your business, contact OneClick Commercial Funding.