6 Options for Business Lines of Credit
Most business owners lack the upfront working capital to handle all aspects of their businesses on their own. This is why many of them turn to take out lines of credit to help them purchase equipment and inventory, buy new real estate, pay vendors, advertise, and more. If you’re considering taking out a line of credit for your business, you’ll need to know the difference between your six options.
Bank Line of Credit
This type of credit is usually the hardest to get since it’s the most traditional. If you do qualify, you’ll receive lower interest rates and more financing most of the time. However, keep in mind that the application process takes much longer with banks, so this isn’t a good option if you need working capital quickly.
Business Credit Cards
A business credit card is a convenient way to take care of your business needs. A business card allows you flexibility without the requirement of collateral and may even provide a 0% APR as an introductory rate. Don’t forget to look for cards that offer rewards systems.
Those who don’t qualify for traditional lines of credit may try to use their equipment as collateral for loans. Asset-based lenders focus on your prospects more than your past business, which makes it more likely that you’ll be approved. Sometimes, these types of loans are also backed by inventory.
If your company’s customers pay via invoice, you can sell the unpaid ones to a company for a percentage of their worth. This type of financing, known as accounts receivable, gives you up to 90% of your income right away and even frees you up to handle other parts of your business since the lender takes over administrative tasks.
Medium-Term Line of Credit
Medium-term lines of credit are like medium-term loans but have some advantages. The line of credit usually lets the borrower draw more money and pay less back in annual percentage rates. This type of financing is best for handling payroll or other bills or handling small emergencies. You’ll need a higher credit score and higher revenue to secure this funding, however.
Short-Term Line of Credit
A short-term line of credit loan works much like a traditional loan, but because you repay it in a relatively short amount of time (up to 18 months), you typically receive less funding. Lenders that provide these types of loans look at your credit score, your company’s revenue, and more to determine eligibility. The interest rates and other terms vary and may be higher, but these loans are usually easier to qualify for and provide you with funding quickly.
Now that you know a bit about the lines of credit options you have, you can make the best decision for your business.