Even thriving small businesses sometimes need additional funding to maintain strong cash flow or fuel further growth. One financing option to consider is a business line of credit. Here is some information to help you determine if this method of funding is the right fit for your company.
How Lines of Credit Work
When you are approved for a business line of credit, you do not receive a lump sum of money that you then pay back in monthly installments. Instead, you have continual access to funding up to a certain predetermined limit. You can borrow the amount you need, and you are only charged interest on the amount you borrow. Once you have repaid the funds, you can draw on them again.
Secured and Unsecured Lines of Credit
To obtain a secured line of credit, you need to put up some sort of collateral. Assets that lenders accept as collateral include real estate, equipment, inventory, vehicles, and invoices. Unsecured lines of credit do not require collateral, but fees and interest rates may be higher, and you may also need to sign a personal guarantee.
Qualifying for a Line of Credit
Lenders are more likely to offer lines of credit to businesses that have been in operation for at least a year or two. You will have to have a minimum credit score and good credit history. Lenders will want to peruse your company’s financial statements and tax returns to verify its annual revenue.
The Advantages of a Business Line of Credit
When you obtain a business line of credit, you have continual access to funding before you need it. This means you will be able to easily handle unexpected expenses or take advantage of growth opportunities. You are better prepared for whatever might happen in the future. Additionally, effectively handling the payments for your business line of credit can help improve your credit score.
For more advice on obtaining a line of credit for your business, contact 18 Sierra Financial.