Business lines of credit are used frequently to help improve company cash flow, support expansion, purchase equipment, and handle a range of other financial needs. Often, they’re a popular financial product among those operating the estimated 33.2 million small businesses in the United States.
However, there are multiple kinds of business lines of credit, each with its own benefits and drawbacks. If you want to figure out which is best for your company, here’s a look at the different types of business lines of credit.
Secured Line of Credit
With a secured line of credit, businesses provide collateral to secure the loan. Essentially, your company selects an asset that would become forfeited to the lender should the business fail to meet its repayment obligations. When opening the line of credit, a lien is placed against the collateral, giving the lender specific rights to it under certain conditions, like not making payments.
Often, a secured line of credit is helpful for individuals with poor credit scores or companies that don’t have good credit scores. With collateral, lenders may be open to higher-risk lines of credit, as the asset safeguards them against losses. Plus, it can lead to more favorable terms and interest rates for the same reason.
The items companies can use as collateral may vary by lender. Real estate is commonly accepted, as well as company vehicles or high-value equipment. Usually, inventory, investments, outstanding invoices, or cash can also work.