When you’re running a separate business on your own, whether you like it or not, you’ll start thinking of ways how to support your business financially. The reasons could be various: unstable cash flow, change of your marketing strategy, business expansion, unexpected bills, payroll issues etc.
Perhaps, the first thing you would come with is taking a traditional small business loan. At the meantime, this type of funding is a wonderful solution to one-time financial needs, let it be, purchasing a better inventory. Here you can at least roughly weigh the amount of money needed to cover these costs. But what to do with urgent situations requiring from you a super-fast reaction?
Fortunately, for such you-never-know scenarios, many entrepreneurs have already come up with the right solution – a business line of credit. As you may have guessed, the concept of credit line operation is a little different from a usual business loan.
A line of credit provides consumers with an opportunity to take a certain amount of loan anytime they would need to. Most importantly, this type of loan is revolving and, therefore, always available for repeated usage. Also, you are not required to do fixed monthly payments – you decide on your own how much you would pay, would it be now or later.
Herewith, customers should keep in mind that credit lines have certain limits and if you pay off the taken amount in time, not only would you keep your interest rate lower but also ensure yourself that you’ll have an available amount of money to borrow next time.
Sounds like a tempting thing to try out? Then, let’s go over 4 most common types of small business lines of credit presented in the market for now.
1. Credit Lines From Online Companies
Many people are first skeptical about loans provided by credit companies. Yes, indeed, some of them might be unreliable and as you sign the agreement between each other, they will eventually break their terms to take as much benefit for themselves. But the deal is: NOT every company is like that.
Online lenders from Personal Money Service care about their reputation and they all have necessary valid certifications proving they are not scams. Many companies are now offering business owners to apply for a business line credit setting their own eligibility requirements. Most of them set higher APRs on a credit line since this type of loan is usually unsecured.
At the meantime, online lenders are not that strict about users with poor credit scores or no credit history at all, so this could be a chance for all relatively young entrepreneurs to build a better credit.
2. Credit Lines With a Collateral
Even though unsecured lines of credit are more common, the banking sector offers its alternative – an asset-based line of credit. As the assets for this type of a loan, you can pledge your receivables, inventory, and equipment.
The amount of your credit line is determined by the value of your collateral. Pretty clear that secured business line of credit rates are supposed to be lower than ones for an unsecured loan.
3. Traditional Lined of Credit from Banks
Applying for the credit lines in an old-fashioned style through your local bank can sound like a good idea from the first side. Supposing, banks indeed offer you lower Annual Percentage Rates on every type of loan available to qualify there for.
However, you take into account the other important factors, such as long application and waiting period, as well as incredibly high criteria for the candidates to get approved, it might be working against you. Unless you have some extra time and nerves, of course.
4. Credit Cards
First, you should remember that business lines of credit and credit cards are still different. But in general, the concept of operation is very similar.
What makes credit lines more of a beneficial choice is their lower interest rates and no charge for cash advances that might be available on the credit card.
Creating a business credit card is a super quick process, besides, many of them offer 0% introductory APR, in other words, a teaser rate that lasts at least 6 months after the card is issued.