How Business Credit Lines Work

Starting up a new business includes creation of products or services, inspired brainstorming sessions, and the excitement of a new endeavor. Unfortunately, unless you already have ready access to full financing, money can also become a large part of the experience. Opening up a line of credit is a common way to gain financial support for your business model. It’s not always the most pleasant aspect of the research, but it doesn’t have to be too painful if you understand your options beforehand. Here are the basics of how business credit lines can work for you.

Secured

Secured business credit lines are an option for start-ups as well as businesses that already exist. If you are looking to increase the cash flow you have access to while building a savings, you can utilize this credit line as your working capital. Being of a secured nature means your loan, or credit, is given when there is a form of collateral that can be used as assurance of repayment. Equity or a property may be put up as this collateral. Then, if you default on the loan, the property can be seized and sold, thus resulting in the lending organization recouping its investment. You may also put a certain amount of money into an account with the bank that is the equivalent to the amount of credit you are given for a set amount of time.

Unsecured

If you boast good credit, unsecured business credit lines might be an option for you. If you have a high score through your business, it might be enough for qualification. However, if you have yet to establish a positive credit history with your endeavor, it is possible to use your own personal history to apply for this type of financing. If you are just starting out, you might be given a low credit line and given the opportunity to build up and establish a positive history. Presenting a strong business plan for review may assist in receiving acceptance. Bring any financial statements that you may have. Be sure to have stats available such as your start-up date, the amount of revenue you are currently bringing in, and expenses you currently have and those you are expecting to incur. The more specifics you can offer, the better the impact that can be made on your options.

Take the time to research business credit lines to figure out which might be the best fit with your company and its needs. You may be eligible for more than one type of financing and may be offered different rates based on the type you choose.