Running a business typically requires a large amount of working capital on a regular basis. If your business does not have access to capital, it may only be a matter of time before the business is doomed. Using a business line of credit could be a way to come up with the money you need to continue operations.
Business Lines of Credit
A business line of credit is a device that allows you to borrow money as it is needed. You open the line of credit with a lender, and it typically has a maximum amount of money that you can borrow. You do not necessarily have to borrow the money right away, but the line of credit is open. Then you can access the line of credit for any reason after it is opened. The money can then be repaid at some point after you use the line of credit.
Unsecured Credit Line
One type of credit line that you could choose to get for your business is an unsecured line of credit. This particular type of credit line does not use any kind of collateral to secure it. Getting this type of credit line lowers your risk because you are not putting anything up for it. At the same time, using an unsecured credit line comes with some higher costs. Since this type of credit line is riskier for lenders, you have to pay more in interest fees.
Secured Credit Line
Instead of getting an unsecured line of credit, you may opt to get a secured credit line. With this type of credit line, you have to put up some of your business property as collateral. For example, you might put a line of credit on the building that you use for your business. By doing this, you put your business property at risk, but at the same time, you can take advantage of some benefits. Lenders may be willing to let you borrow much more money when you offer collateral. The interest rates will also be lower for this kind of credit line.
Paying the Debt
With a business line of credit, you typically will not receive a monthly bill as you would with a credit card. You might receive a statement that tells you how much the balance of your line of credit is and how much you have left to use, but you will not be required to make a certain payment. You are typically free to pay back the money you borrow at any time that is convenient for your business. This provides extra flexibility when compared with other methods of business finance.
- Consultant Journal: New Business Line of Credit; 2006
- Consumer Financial Protection Bureau. "Differentiating Between Secured and Unsecured Loans." Accessed May 11, 2020.
- Nolo. "What Can Creditors Do If You Don't Pay?" Accessed May 11, 2020.
- Federal Trade Commission. "Home Equity Loans and Credit Lines." Accessed May 11, 2020.
Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.