A secured business line of credit is one of the best loans an owner can get.
Business is all about maximizing profits and earning a passive income. Unfortunately, not everyone has the necessary funds to start a business. This can leave many people struggling to figure out how they’ll start the business of their dreams.
Businesses borrow money for a variety of reasons, mostly to invest and make purchases benefit them. While there are a plethora of loan types, a line of credit is the only type that allows a business to keep borrowing.
Keep on reading to learn more about lines of credit and how to get one!
What Is a Secured Business Line of Credit?
A secured business line of credit is a type of loan that you can use whenever you’d like. The line of credit (LOC) is the maximum amount that you’re able to borrow.
One of the most common lines of credit is the credit card. A credit card can be used continuously, so businesses can opt for these or other types of LOC.
If your LOC is £5,000, you can’t borrow past that. However, you can continue to borrow providing that you pay some of the money back. If you’ve maxed out your line of credit, paying off £1,000 would allow you to start borrowing up to £1,000 again.
What makes a secured line of credit different from an unsecured line of credit is that, unlike an unsecured LOC, you need to provide collateral.
Collateral can come in the form of many things. When it comes to businesses, they’ll usually offer property and equipment as collateral.
Obtaining Traditional Bank Credit
A line of credit can be acquired at most banks and credit institutions. Many businesses will opt for traditional bank credit because it’s secure and can provide a lot of funds. The best private banks have better rates than public ones, so consider that when you’re looking for a loan.
Depending on your credit, you can get a high borrowing limit with low interest rates providing that you’re making minimum payments.
Newer businesses will need to apply for a secured line of credit because they’ll have a hard time proving their financial eligibility. As your business establishes itself, you can start looking into unsecured LOCs. Keep in mind that you’ll have to pay high interest rates if you go for unsecured ones.
Banks often require borrowers to have a good credit score, so it may be difficult to obtain a LOC if you have a poor score or little to no credit history.
Small Business Loans
Small business loans are designed to help startup businesses get their feet off the ground. With this type of loan, you’re guaranteed low interest rates and can borrow several million.
You can get them at most banks, similar to traditional bank credit. Be sure to look at the terms and conditions of the loan. You’ll want to know the interest rate and the duration of the repayment period.
Seeking Out Investors
Seeking an investor is a great source of an LOC because they can provide a cash reserve when you need money. Investors regularly put their money into things like stocks, but you can ask them for direct money and offer them something in return.
When an investor buys a stock, they technically become an owner of the company. If you’re trying to borrow money from them, you could offer partial ownership similar to that of a stock.
You can also work out a deal in which they offer a continuous flow of money, essentially providing you with revolving debt.
No matter what you do, ensure that you have everything in a written, legally binding agreement. This protects both you and your investors in case someone doesn’t fulfil their end of the deal.
How to Guarantee That You’re Approved
Businesses have to go through a business credit application process similar to the loan process that most individuals go through. As an owner, you’ll need to meet with a lender and convince them that you’re suitable for a loan.
Do the following to guarantee that you’re approved:
Improve Your Credit Score
To get a loan of any kind, you’ll need to have a decent credit score. When it comes to a business line of credit, lenders will want to see that you’ve previously had an LOC and have managed to pay it off.
What builds credit is paying off debt and reducing how much you borrow. The best way to do this is to start putting most of your money into the debt with the highest interest rate. While doing this, make minimum payments on your other debts to continue raising your score.
Bring Financial Records
You need to show up with organized records of your finances. This will include things like documentation of income, previous debts, and receipts of your payments. Being organized will look good to the lender and you’ll be able to present them anything when they ask.
Start Considering a Secured Business Line of Credit
If you own a business or would like to start one, a secured business line of credit can help you get ahead by providing the funds to make bigger purchases. While it’s possible to find success without borrowing, paying out of pocket will be difficult if you don’t have much money saved.
We encourage you to start looking into various banks and decide whether you should get a secured line of credit. If you have the funds to operate a business without borrowing, avoid getting an LOC so that you don’t have to pay interest.
Browse our business section to learn more about business-related finances and tips.
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