LINES OF CREDIT
Lines of credit enable business owners to access working capital at any point that it is needed. Businesses use credit lines to cover regular expense items such as office supplies, raw goods, and merchandise, to launch new projects, smooth out seasonal revenue, and to tackle emergency cash needs. Credit lines can be tailored to specific needs, such as real estate, or be for general use.
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WHAT IS A LINE OF CREDIT?
Lines of credit are an effective tool in the financial arsenal of any small business. They enable easy access to cash on a recurring basis. A secured line of credit is asset-based, allowing the borrower to draw funds based on the value of a real estate property, vehicle, or equipment. Borrowers can take out any amount at any time, up to the available credit limit, as long as the account is current. Payments back into the account pay interest and free up future funds.
Unsecured lines of credit are similar to business credit cards, in that the credit limit isn’t based on asset values. These lines typically have lower credit limits and are available to borrowers with good credit scores. Non-revolving and no-recourse lines are also options. Non-revolving lines don’t renew with each payment and close when the balance is paid in full. No-recourse lines protect the borrower’s assets beyond those used to secure the loan.
ADVANTAGES OF A LINE OF CREDIT
- You don’t need a high credit score to qualify.
- Making regular payments can help repair credit.
- Available whenever you need cash.
- No need to reapply each time you need to borrow.
Lines of credit are ideal when you may need to borrow frequently or are unsure of how much you need. Although you can use a credit line for major purchases like real estate and equipment, more targeted loans are sometimes a better choice. Talk to your broker about lump-sum loans, bridge loans, and term loans.
A secured line of credit allows a borrower to use the value of an asset as collateral on the loan. If they’re unable to pay back the loan, the lender can seize the asset. However, if the value of the asset isn’t enough to cover the cost of the loan, the lender can seek other business and personal assets to make up the difference. A no-recourse line limits the lender’s ability to seek assets beyond those used to secure the line.
No, you don’t need a high credit score or a decade in business to qualify for a secured line of credit. Other lines, like unsecured lines, may be harder to qualify for. Your broker can match you with the right line and help you qualify.
First, decide to what purpose the funds will be applied. Specialized lines can help you fund large purchases, like real estate property. Next, decide whether you want to use assets to secure a loan or if you would rather keep collateral off the table. Then, speak with a broker to match you with the right lender.
