Tips for Business Lines of Credit
Don’t let fear or a misunderstanding of financing prevent you from enjoying the working capital support your small business needs. Whether you’re just launching your startup or looking to outpace your competition, follow these tips to enjoy access to the best business lines of credit and utilize them effectively.
A business line of credit works much in the same way as a business credit card. You’ll be issued a maximum credit limit, then have the opportunity to immediately draw on the credit or wait until an emergency situation. If you choose a revolving line of credit, you’ll be able to take out multiple, small loans, similar to a credit card. A non-revolving line of credit only allows you to take out a single loan at a time, regardless of whether it’s below your maximum credit or not.
However, unlike a credit card, business lines of credit offer competitive interest rates and very high credit limits. They require a more strict application, but give you access to a significant working capital boost. When you encounter a slow season, have a sudden equipment failure or need short-term financing to purchase inventory for a project, a line of credit can be the perfect tool for you.
Determine whether you’re better off with a secured or unsecured line of credit. Secured credit requires significant backing with an asset. This is usually real estate, although it could be a piece of equipment, personal property or even valuable inventory. A secured line of credit is typically easier to apply for, but comes with the risk of losing property that’s essential to your business.
Some credit options have a minimum loan amount. Ideally, you won’t use your line of credit for minor, daily purchases. Instead, this financing option is meant for a significant, short-term investment in your company. Choose a project that helps propel your company forward and offers you a chance to make enough extra to quickly pay off your loan. That way, you won’t have to worry about interest rates and can leverage your line of credit.
An unsecured line of credit offers you more flexibility and reduces the risk of losing critical property. These lines of credit aren’t without risk, however, and they can require a higher credit score to apply. Weigh your options carefully before applying, and find the perfect timing of your line of credit to maximize your profits and balance your cash flow today.