Small Business Line of Credit

How to get a line of credit for your small business

If you are looking for a way to cover costs as your business continues to grow, consider the benefits of a small business line of credit, which can function in a variety of ways. Whether you need to purchase equipment and inventory, fund special projects or cover unexpected cash shortages, the line of credit's continuous stream of funding can come in handy. Furthermore, you will only be charged interest on the money you use, which makes the line of credit an appealing alternative to a loan. Here are some tips to help you find a small business credit line that will serve your company well.

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Secured Business Line of Credit

You may obtain a secured line of credit for your small business by offering the business itself as collateral, to be forfeited in the event that you are unable to repay the money you borrowed. This type of small business credit line carries the advantage of lower interest rates and a higher amount of available funds, but the specific terms will vary between lenders. Be sure to factor any additional fees into corporate credit agreements when making comparisons, as consulting and legal expenses can significantly alter the final costs.

A business equity line of credit is a secured line of credit in which you use the equity (or net worth) of your home, your business or both as collateral. And if you look around online, you may be able to find an instant business line of credit – although it's not exactly instant, this line of credit is designed for ease of access, and once set up, you will be able to draw on it immediately and as frequently as you need to.

Regardless of what you intend to use as collateral, an important factor in obtaining a secured small business credit line is the financial history of your company; be prepared to present your financial records and tax receipts to your prospective lender. You will most likely deal with a bank to secure a mortgage, and you might get the best deal from the bank you are currently using for your business accounts, but it is still advisable to shop around for the best deal.

Unsecured Business Line of Credit

If you are unable or unwilling to provide collateral for small business financing, an unsecured business line of credit may be your best option. In fact, many new small businesses run into cash trouble at some point and will need to turn to some backup capital. However, to qualify for this type of credit line, you will need to counteract the risk for the lender by showing that your business has a positive credit history. Although it may come with less capital and a higher interest rate, an unsecured business line of credit can provide the funding you need to help your business grow.