Business Credit Line
A business line of credit is a revolving loan that enables you to draw funds, as needed, up to a maximum dollar amount. These funds are usually used to meet the short-term working capital needs of a business. A line of credit can be used to buy inventory, finance marketing, and brand promotions, maintenance of business equipment, and bridging through cash flow cycles. A business credit line is an excellent tool that you can use to finance your business operation. A business line of credit offers flexibility that other typical loans don’t provide. A research report from Forbes states that “the fundamental difference between traditional loans and business line of credit is its flexibility in usage and repayments.” A business line of credit gives you an opportunity to choose when and where to deploy the funds. There are two types of business lines of credit: A secured business line of credit and an unsecured line of credit.
A secured business line of credit
This type of credit requires a business to pledge a particular asset as collateral to secure the loan. Since a line of credit is a short-term liability, account receivables or inventory can act as collateral. If you are not able to repay the loan, the lender will take ownership of the inventory and liquidate to pay off the balance.
Unsecured business line of credit
An unsecured line of credit does not need any collateral. However, a general business lien will be required. Because there is no collateral, lenders require a high credit score and a good business track record. For this type of a line of credit, the interest rates tend to be higher, and the credit facility size limit smaller.