Different Types of Business Lines of Credit | A Complete Guide

Different Types of Business Lines of Credit | A Complete Guide

A business line of credit helps your business to pay for unexpected cash flow issues. For newly business setup, you may need to have a proper budget to pay for expexditures, to buy a machinery and to pay salaries to your employees on time. Business line of credit helps you for financing in a hurry. Almost every business owner needs of external funding for his newly establish business. In business line of credit, you have to only pay for what you use.

There are so many critical situations in setting a new business. If you have a late paying customers then your line of credit will not increase. Every business owner don’t want to to miss out an opportunity to grow his business and company. So in this case, business line of credit helps you as financing when you need to finance your expenditures.

Types of Business Line of Credit

Traditional Secured Business Line of Credit – Secured business lines of credit depends on collateral. It means you should put up something such as business assets or your property as a guarantee. The demand for this guarantee becasue to make sure that if you default on repayment of your loan, then the lender company or bank will claim your collateral.

 In traditional secured business line of credit, there is very low risk and a flexibility in terms and conditions. Secured line of credit also require a low interest rate and you may also qualify for a higher line of credit if you fulfill the basic requirements of business line of credit.

Traditional Unsecured Business Line of Credit – In traditional unsecured business line of credit, there is no need to provide collateral. If means you don’t have to provide your property and assets as a guaratee. But as compare to traditional secured line of credit, interest rates are higher than secured line of credit and they will also charged for monthly or annually maintenance charges.

Real Estate Line of Credit – Real estate line of credit is similar to home equity line of credit. If you’re in real estate, then you should also think about another product. You can use equity in your own home or someone property that you own to secure the loan. Real estate lines of credit come in two forms – secured and unsecured. You FICO score is the determining factor in unsecured real estate line of credit.

Business Credit Card – Business credit card is also an unsecured option. With a business credit card, if you have nothing that you own is tied up, no matter its a business or personal asset. In business credit card, if a line of credit take days to transfer funds, you can get quick access to your cash. As compare to lines of credit, the payment terms are flexible in business credit card.


Bottom Line

As there are so many different types of business line of credit, always keep you personal and business credit in a well form, no matter what type of business line of credit you choose. There is no need to use so many credit cards. No matter which choice you make for your business, there are a few things that you can do to help improve your chances of getting the best deal. Keep your personal and business credit in good shape, don’t use too many credit cards (and don’t max out the ones you have), and work to show profitability. If you just establish your new business setup then you business credit might not be strong enough to qualify.