A line of credit in business provides accessibility to funds as needed, up to a predetermined limit. Versatility is the primary benefit of a line of credit. You do not pay interest until the line is drawn on, making it fantastic for emergencies, as when you require them, funds are always available. This can be an unsecured or secured line with an interest rate that is variable and multiple options for repayment.
Business lines of credit are perfect for financial needs in the short-term, like boosting cash flow, finding seasonal working capital, finding inventory, materials, and equipment, and funding accounts receivable. A secured business line of credit, and an unsecured line are the two types of lines of credit for business. Fundamentally, both kinds offer the same benefit for an entrepreneur – that of providing a spring of continuously accessible credit which the business can utilize for operational purposes. Both, secured and unsecured lines of credit, can help businesses – up to a few million dollars for large corporations and up to a few thousand dollars for small businesses.
Most businesses prefer an unsecured business line of credit, since the conditions are not as stringent as those with secured business lines of credit. The owner of the enterprise must show to the bank some collateral, guarantees, or proof of personal possessions before they are granted use of the money through a secured line of credit. Extending a line of credit on an unsecured business loan is only likely to be approved according to the credit profile of the business and their ability to repay.
Lending institutions tend to grant more secured versus unsecured business lines of credit for the simple reason that the secured option allows them to disregard minutiae, such as how long the enterprise has been operational, a less-than-stellar business credit history, or uncertainty with set areas disturbing the business. These factors could scare off the lenders who think of such an enterprise as a higher risk in terms of pay back capabilities or meeting the terms of the business line of credit, and so they may be wary about financing an unsecured line of credit.