It so easy for people to pull out a credit card and swipe it when they want to buy, rent or book something; sometimes without ever considering the cost. And it’s nearly impossible to make a purchase online without one. We live in a society where credit matters, that many establishments disfavor accepting an all cash transaction without at least having a credit card on file. Take airlines, car rental places and some hotels for example. Small and mid-size businesses encounter many of these same instances and more, where they need access to credit with suppliers to stock inventory in stores or warehouses, purchase materials for remodels, and ongoing business expenses. So it’s worth getting down to the nitty-gritty of business credit so that you can empower your business to achieve greater results.
Many big businesses have the resources available to sustain the financial needs of the company. Many small businesses do not. Obtaining lines of credit for the small to mid-size business enables the cash flow needs of the day to be met.
Some of the best lines of credit for limited size businesses are revolving in that the line of credit is unsecured, open-ended and not fixed as with installment loans. Basically, this means that if a business is approved for $50,000, the business doesn’t have to access it all at once, or ever access the full amount. The business can use $10,000, $20,000, $30,000, or any amount, knowing that $50,000 is available.
Not so with an installment loan. If the business is approved for $50,000, then the whole $50,000 must be received by the business. With a revolving line of credit, the business is only responsible to pay back the amount used.
Now with business lines of credit the owner falls into one of two categories depending on credit worthiness. There are secured and unsecured lines of credit. Secured business credit requires collateral. The debt is usually paid over a longer period of time and the interest rates are lower. The collateral may consist of the business’s inventory, which can be sold if the borrower defaults on the loan. Unsecured business credit doesn’t require collateral, but the interest rate may be higher because the lender will not have access to the assets if the borrower defaults, and the pay back period is shorter than a secured loan. Also, the amount of credit approved is less than a secured loan, and the credit requirements aren’t as substantial.
Many limited in size businesses get revolving credit to support start-up costs or to fund the daily operations. These lines of credit can be used for buying inventory, purchasing equipment, making repairs, meeting payroll, advertising and social media promotions, and leasing office or warehouse space, or anything the owner can think of; unlike term loans that can only be used for specific purposes approved by the lender.
Revolving credit is much more beneficial to the owner because it’s unsecured. The interest rate is based on a 30-day cycle and not a daily cycle; it is also based on the amount used and not the amount awarded. Revolving credit allows for the business to build credit based on the repayment history. Whereas, with term loans once repaid, the borrower has to reapply for another loan, which ultimately affects the borrowers credit score.
There is a personal guarantee with revolving credit. Not everyone is aware that new start-ups and mid-size business owners are often approved. The criterion isn’t all that extensive. The borrower should have a 720 credit score, no bankruptcies, no foreclosures, no late payments within the past 24 months, and have already have a credit card with a $5,000 limit.
The U.S economy is built on small and mid-sized businesses and getting down to the nitty-gritty of business credit can certainly empower your business to achieve greater results. Apply today and get a funding estimate within 24 hours: