When it comes to small businesses looking for financing options, they most often look for credit lines because they offer flexibility. Traditional loans give you cash up front and you pay it back over time. However, with a line of credit, you have a set amount in reserve, and you take it out as you need it. Then, you make payments to refill the reserve. Basically, it’s a safety net.
In this article, we will explore four lines of credit your small business needs to know about.
Traditional Credit Line
This type of credit line is for those businesses with proven business models. In most cases, this will come from the bank where you do your business. These often have lower interest rates and closing costs than a loan of a similar size, but you risk rate increases if you don’t repay what you’ve withdrawn or your account becomes overdrawn.
Short-Term Credit Line
The difference between this and a traditional credit line is about the same as the difference between short-term and conventional loans. With a short-term line of credit, you’ll end up with a higher interest rate, lower maximums, faster turnaround times, but the application requirements aren’t as strict.
Equipment-backed Credit LineÂ
Another option for small businesses is a credit line backed by collateral, such as business equipment. The lender will provide you with a line of credit based on the value of your equipment. These typically have relaxed requirements, but the lender can claim ownership of the equipment if you default on payment.
Invoice-backed Credit Line
This is also known as accounts receivable financing and allows you to get paid right away instead of waiting for customers to pay you. Of course, with this line of credit, you’ll have to cover the costs/fees. The value of your invoices determines the size of your credit line and, often, as invoices increase, the credit line will as well.
If you own a small business and want to ease your cash flow issues, contact Eagle Bend Capital Financing to guide you through these options.Â
