Lines of Credit
A line of credit can help you meet your business’s diverse needs and smooth out seasonal revenue cycles. Hard money loans and CRE financing are valuable tools, but not if you need to borrow frequently. A line of credit lets you borrow and borrow again as needed, as long as you’re under the credit limit. When you make payments to your account, you free up more borrowing power to use when you need it again. Most lines let you use the money for any business expense, making them a very flexible option. Use assets to secure a line or avoid using collateral with an unsecured line.
Seasonal Cycles
Retail, recreation, and land management businesses often operate on a seasonal basis. But keeping the lights on is a year-round challenge. Even out the cycle when you use a line of credit. You can borrow from your credit line when cash flow is tight and pay back in when profits are up. Take out what you need as often as you need it when you stay below your credit limit.
Urgent Need
Unanticipated expenses always seem to crop up when you’re least prepared. Be ready for financial surprises and quick strike business opportunities alike. Most lenders don’t charge interest if you don’t have a balance. That means you can keep a line of credit open at very low cost. When emergencies hit, you won’t be left waiting to be approved for a bank loan.
Secured vs. Unsecured
Secured lines of credit require collateral. The credit limit of that line is based on the value of the collateral. If the borrower defaults on the loan, the lender can then seize the collateral assets. Unsecured lines of credit don’t put assets in the line of fire, but can be harder to qualify for. Unsecured lines use the borrower’s credit history to determine the credit limit. Ask your broker which one is right for you.
Non-Recourse & Non-Revolving
Non-recourse lines of credit limit what the lender can seek in the event of a default. With some loans, lenders can seize collateral. But, if the collateral doesn’t cover the loan, the lender can seek other business and personal assets. A non-recourse line of credit limits the lender to only the collateral on the loan. Non-revolving credit lines simply don’t renew when repayments are made. Once the credit limit has been reached, the account closes.
Line of Credit Overview
Highlights
– Lines of credit help smooth out seasonal cycles
– You can borrow multiple times without multiple loans
– Secure a line with assets, or qualify for an unsecured line
– Payments into your account free up the balance to borrow again
Benefits
– Borrow as often as you need
– No collateral required for an unsecured line
– Asset-based or credit-based, you choose
– Pay no interest when you have a zero balance
– Operate successfully while maintaining lean cash reserves
Challenges
– Interest rates are often higher than traditional loans
– Don’t typically cover large purchases or mid to long term repayment
– Interest payments change depending on your balance
– Collateral is required to secure a line of credit
Alternatives
If a line of credit isn’t what you’re looking for, try:
– Factoring
– Term loans
– SBA 7a loans
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