Staying on top of your business’ finances can be a difficult challenge. Sure, “money in versus money out” sounds pretty simple, but when it comes down to it, juggling payroll, rent or your mortgage, equipment costs, and all of the other expenses that come up over the course of a week or month really add up. That said, if you’ve found yourself at a point where you’re just scraping by, or maybe need a little help to get to that point, you’re not alone. Luckily, there are many different types of financing available to small business owners. Lines of credit are a great option if you’re in that position, and here are a few reasons why.
A line of credit operates very similarly to a credit card. You’ll need to approach a lender, frequently a bank, and apply for the funds. Based on your financial history and a number of other factors, you will be approved for a certain sum, which you’ll have access to over the course of an agreed-upon duration. As the need arises, you’ll be able to withdraw against that sum, choosing how much you do withdraw as you go. You’ll have to make regular payments, including interest, that value of which depends on how much of the total you’ve used and how much you’ve paid off. Once the initial agreed-upon period, called the withdrawal period, you’ll no longer be able to withdraw funds, but will continue to make payments until you have repaid the lender fully, including interest.
The Different Types
Lines of credit come in many different varieties. This kind of funding will either be secured or unsecured. With the former, you’ll have to offer some asset as a form of collateral, which will be seized by the lender if you prove unable to make payments. The latter does not require the collateral, but, as a result, can be more difficult to get approved and frequently come with higher interest rates, as well as lower sums approved.
Additionally, you can choose between personal or business lines of credit, which will be secured by either personal assets such as real estate, or business assets, respectively, as collateral. Another common type is a home equity line of credit, which allows homeowners to borrow funds using against their property. This is often referred to as a second mortgage.
As long as you’ve done your research, this type of business or personal financing can be very helpful in navigating tricky financial times.