Best Options for Your Business Lines of Credit
Having collateral for a loan, no matter the amount isn’t always feasible. You may already have a business loan, and trying to qualify for another will take some capital or assets to back it up. You have appointments set with some potential investors, but you need to start considering other avenues to secure the money you need to get your business moving in the right direction. Unsecured lines of credit are just one example of resources small business owners have to help in a money crunch.
How a Line of Credit Works
A line of credit is similar to a credit card in that it is an open line of credit that you can use over time. A line of credit can pay for things like equipment, payroll, inventory and any other element your business needs. The difference in a line of credit and a credit card is the qualification process is usually more stringent. Once approved, you can breathe a little easier knowing you will have quick access to money you need in case of emergencies or as situations requiring a large sum of cash arise.
For gaining access to unsecured lines of credit, your first stop can be your current lender. Sometimes when small businesses have loans with a lender, and the payment history is positive, it is easier to obtain a line of credit. If there have been some bumps along the way, and the history isn’t the greatest, you may want to look elsewhere. Many lenders want to see your budget and business plan, as well as at least six months of operating expenses and profits. Your business and personal credit scores should also be in relatively good shape before you go off applying for more money.
Interest Rates Vary
Depending on the amount of the line of credit as well as your financial history, your lender may offer a variable interest rate. Sometimes these rates increase depending on the amount you use. If you keep the line of credit open for emergencies only, your interest rate may stay low. However, if you keep eating up an available balance month after month, the bank may raise your rate in fear you are nearing default.
Unsecured lines of credit and other non-collateral loans may be just what your business needs to help it get through the leaner times. Knowing what you need before you go can help ensure you are prepared to give your best effort in securing the funds. Using them wisely will also help keep your interest rate and debt in check.