Covid-19 or not, many small businesses need lines of credit from time to time to fund their business efforts. Many lines of credit are open to small businesses. We’ll review some of the most common and their nuances. So that you can choose the best funding option to grow your business.
The Spectrum of Credit Opportunities
Look into these for your working capital needs:
- Traditional Bank Sources. Although often the first thought that comes to mind, these tend to be the most difficult lines of credit to obtain. They generally require a significant amount of documentation to support the application. Other funding methods may be more efficient.
- Real Estate Line of Credit. This may be useful if you are in the real estate development business or need to buy a property for your business. A real estate loan requires no collateral, financial statements, or appraisals. Instead, borrowers are evaluated against their personal credit score.
- Alternative Lenders. These may function as attractive lenders for capital infusions for small businesses. These are essentially “Fintech” (financial technology) firms that are in the business of lending to small- and medium-sized enterprises. Amounts up to $100,00 are commonly available.
Keep the Following Points in Mind
- Secured and Unsecured Lines of Credit. Credit lines can be broadly divided into two types: Secured and unsecured. In a secured line of credit, your cash is pledged against an asset base. An unsecured line of credit is generally preferred because no collateral is required.
- Personal Line of Credit. Make sure you distinguish between personal lines of credit, taken against your personal property, versus business lines of credit, taken against your business.
Before you take on credit, make sure you know the purpose of the loan, why it makes good business sense, and the repayment terms. Good luck with your ongoing enterprise.