Starting a small business is rarely easy, especially when it comes to untangling all of your financial options. The good news is, though, that with a little research finding the right financing option for you and your new business can be simple.
What Is a Line of Credit?
For many small businesses, obtaining a line of credit is sometimes the best option. A line of credit is a loan that is also a revolving line of credit, much like a credit card is. With it, you are provided a line of credit that goes up to a predetermined limit. You can spend as much or as little as you need to up to that limit and are only required to pay interest on what you have spent.
Typically, there are two types of lines of credit. One of them is a secured line, which involves some kind of collateral like business equipment or real estate. The other kind is an unsecured line of credit, which does not require any collateral. Usually, unsecured lines are more desirable. However, they may be more difficult to obtain for a business that does not have much of a credit history yet.
Why Should You Get One?
There can be many reasons to get a line of credit over a traditional loan. With a traditional loan, you are provided with one lump sum that you must repay in regular payments over a period of years. For those that want a predictable payment each month, this could be beneficial. Yet for many small businesses a large regular payment could restrict their finances and make it difficult for them to function properly.
With lines of credit you have more financial flexibility because you are only required to repay what you have spent and nothing more. You can spend a little one month, and a lot the next if you need to. It can also be a great option for seasonal businesses, that way even during off season you can still have the funds to pay things like utilities and payroll, until it is busy season again.
Starting a small business can come with a lot of stress, especially when you are trying to figure out what kind of loan options are right for you. That doesn’t mean, though, that you need to worry. With a little research it can be easy to find the right kind of financing for your needs.