While you may understand what a “line of credit” is in regards to your own credit card collection, it means an entirely different thing when it’s applied to your small business. Having lines of credit available to you in times of need can be the difference between being open for business and closing your doors to the public forever.

Here, we explore what business lines of credit are and how they benefit your small business.

What is a Business Line of Credit?

A business line of credit functions somewhat similarly to a credit card; in fact, it has more in common with a credit cards as compared to a small business loan overall.

Basically, a line of credit will allow you to access money at any point for any need, somewhat like whipping out a credit card and using it anywhere the credit card is accepted. It’s unlike a small business loan because you don’t end up with a lump sum of money at the beginning with set payments.

It’s more like a credit card in the sense that you can use it at will as needs arise. And as you pay down the line of credit, you can again access that money to borrow, just like how paying down your credit card allows you to access more of the credit card’s limit to use again.

When Would I Use a Business Line of Credit?

The number one reason why any business would open lines of credit is to access funding on a short-term basis. Many businesses that are trying to manage their cash flow ably will use a business line of credit to cover payroll and other rolling expenses.

Lines of credit may also be used by businesses that are more seasonal in nature, as a way to get by during the leaner months of the year. Basically, just like a credit card, a business line of credit will give you the cash you need, when you need it.

Secured or Unsecured?

A business line of credit may be “secured,” meaning that there is a lien on it, or “unsecured,”meaning that there is no need for collateral. Generally speaking, a business line of credit will be unsecured unless you require an amount that is greater than $100,000; these typically require a lien.

Whether you go with a secured or unsecured line of credit, make sure that you look into this vital lifeline as you go about the business of your business.

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