Line of Credit
Rather than borrowing a lump sum, a business can open a line of credit. These lines can be secured or unsecured, depending on the credit history of the company. The borrower can withdraw as much or as little as necessary and repay the loan over time. As money is withdrawn, the credit line is depleted. If money is repaid, that credit line becomes available again.
Overview
One of the primary drawbacks of borrowing with a traditional loan is that it’s hard to know how much money to borrow. If the company borrows too little, it may have to secure an additional loan. If it borrows too much, it could be saddled with high payments that impact its cash flow and bottom line.
A better alternative may be a line of credit. Instead of receiving a full lump sum, the company has access to a set amount of funds. This way, the business owner can borrow as much or as little as necessary and make payments only on what was withdrawn. For example, if a business has a $50,000 line of credit and borrows $10,000, it doesn’t have to pay interest on the remaining $40,000.
Credit lines are usually secured, meaning that the company has to provide collateral. For enterprises with excellent credit history and financial liquidity, unsecured lines of credit are also available. While no collateral is necessary for unsecured lines, the borrowing limits are much lower.
Loan Highlights
- Credit lines can be secured or unsecured, depending on the borrower’s credit score.
- The borrower can withdraw as much or as little as necessary up to their limit.
- Interest rates can be higher than traditional loans.
- Some lenders require weekly or daily payments on borrowed funds.
Pros
- A line of credit offers flexibility with financing options.
- Collateral may not be necessary to secure funding.
- Working capital lines usually have lower interest rates than credit cards.
- Companies can increase their credit lines over time.
Cons
- Interest rates are higher than traditional loans.
- Unsecured lines require a high credit rating.
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Contact Info
Address: 5340 S Verde, Mesa AZ 85212
Phone: 623-230-7528
Email: Contact@revitalcap.com