For business owners, lines of credit can be valuable tools. Unlike a loan, credit can be used continuously, as long as you make your payments on time. The money that you pay back is added to your balance so that you can use it again as needed. They are also more flexible since you can use them in any area of your business. If you decide that this would benefit your company, there are several types of credit that are available to you.
As the name suggests, a short-term line of credit will need to be paid back in a shorter amount of time than long-term options. These often come with higher interest rates and lower maximums but can be easier to qualify for. This makes them useful for smaller businesses or those just starting out. They can also be a good choice for those who have had past financial trouble that has resulted in a lower credit score.
Credit that is invoice-backed relies on the value of your company’s invoices to determine the amount of credit you will have access to. Like invoice financing, this type of credit is designed to allow your company to continue operating while waiting for customers to make their payments. If you have a large number of accounts receivable, you will likely qualify for a higher line of credit.
For some businesses, acquiring lines of credit can be difficult. If you have bad credit or short credit history, lenders may not feel as comfortable offering you much money. If you are willing to use your equipment as collateral, this type of credit may be a good choice for you. The amount that you receive will be based on the value of your equipment.
A traditional line of credit is more suitable for business owners who have been operating for a while and have established a history of good credit. These will likely have lower interest rates and higher maximums, but they can also be less flexible and often require higher credit scores. However, if you are able to qualify for this type of credit, it may be the best option.
When applying for lines of credit, it is important to consider not only what you need for your business but also what you will be able to qualify for. Look over your options carefully to determine which will be the best for you.