Why Businesses Aren’t As Bad As You Think

Amazing Facts on Business Lines of Credit

Each and every small business owner faces a situation in which they might need to access additional capital quickly, and for most businesses, the best option is to get a business line of credit. A business line of credit is a loan that can give a business owner access to a fixed amount of money that can be used to meet the day-to-day business needs according to their need for money.

LOCs are designed to aid businesses to finance short-term working capital needs like buying inventory or repairing equipment, making payroll and financing marketing campaigns and there are two kinds of lines of credit that are: secured business lines of credit or unsecured business lines of credit. Secured business lines of credit the business has to pledge some assets like collateral so that they can secure the loan and since the credit line is a short-term liability, the lenders normally ask for short-term assets like inventory and accounts receivable to secure the line of credit. The lenders do not need capital assets like property or equipment to secure the line of credit, and if the borrower is not able to repay the loan then the lender assumes the ownership of any collateral, and they can liquidate them to clear the balance.

Unsecured business lines of credit do not need assets like collateral that makes it more popular among business people. The lack of collateral means that there is a higher risk to lenders so for a business to get an unsecured line of credit they need a stronger credit score and a positive business performance and the other thing to note is that interest rates are higher and the amounts are smaller.



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