Owning a business is definitely an adventure. The highs and lows can sometimes be extreme and unwelcoming. For example, the economy suddenly isn’t doing as well as you predicted, or the equipment break down is integral to running your business efficiently. Or, what if the competition moves in around the corner and you suddenly need to launch a new marketing strategy? During these times, you may want to consider obtaining a line of credit.
An unsecured business line of credit can be an excellent option for those uncertain times. There are flexible payment terms, and you choose how much you borrow and when. There’s also no collateral needed and it separates your personal credit from your business credit. The opening and annual fees vary depending on the financial institution. Interest rate (for those with good business credit) is normally set at the prime rate, but can be lowered. You’ll also need proof of good cash flow to be approved.
If your business credit isn’t stellar, your credit limit may be lower and the interest rate may be higher. You can also be denied. If that happens, try applying for a secured line of credit. These require collateral, usually the cash itself or equity of some kind. There are non-traditional lenders who specifically help businesses with poor credit get a secured credit line that meets their needs. You may want to do research on this and remember to read all the fine print.
A line of credit will help establish good payment history (and therefore credit) regardless if it’s secured or not. This will make future borrowing, if it’s necessary of course, much easier. It is best to apply for a line of credit while your business isn’t experiencing turbulence. Banks are more likely to lend when you don’t need it and it’ll be much easier to get approved. It also has the benefit of giving you time to search for non-traditional lenders if you can’t get approved through a typical lender. If you’re just starting out with a new business, you may want to apply for a secured line of credit from the beginning to help build your credit worthiness, plus, it will increase the chances of a higher credit limit in the future.