Understanding Secured Lines of Credit
Unsecured lines of credit are critical to businesses that struggle with seasonal fluctuations in cash flow. With a credit line, a lender offers you an amount of money that you can access at your discretion. Let’s take a look at some details about credit lines.
Choosing Your Lender
Traditional lenders can be very selective in their approval process. The underwriting process is strict, and the approval timeline is lengthy. Alternative lenders provide more flexible requirements and rapid approval. They are structured to get the business owner access to the money as quickly as possible.
Qualifying for Line of Credit
Traditional lenders have stricter guidelines to grant an unsecured line of credit. Most lenders require a minimum credit score of 630 and revenue of $180,000. Typically, the business must be in operation for at least twelve months for consideration. Non-traditional lenders may be a better solution.
With an unsecured credit line, you do not back the loan with collateral. Borrowers typically pay higher interest rates and fees for an unsecured line of credit. If you secure the loan, you are backing it with collateral. The lender may offer lower interest rates and fees.
One of the greatest advantages to lines of credit is that you access the money you need when you need it. You can apply for a loan when the cash flow is strong. The money sits in a holding pattern until you request it. Interest is not charged and payments are not required until you access the money.
Paying With Credit Cards
Some businesses will use credit cards in place of a line of credit. Keep an eye on interest rates and penalties if you choose this option. A cash advance through a business credit card can be extremely expensive to repay.
Benefiting From Your Loan
Having the ability to get cash can be a strategic business move. If a new opportunity crosses your desk, you can move on it quickly. If a vendor offers a discount when cash flow is low, use your credit line to purchase the additional materials at a lower rate.
Building Your Credit
It can take some time to build or repair your credit score. Lenders look favorably on businesses that have an established credit history.
Using lines of credit as part of your financial toolkit has many benefits for your business. Keep these lending options in mind next time you review your financing options.