Businesses routinely need an injection of capital to get started or to grow within their market. Sometimes this capital injection may come from the owner’s personal funds, but in the majority of cases, the business will need to secure some credit. In the normal day to day running of the business, you can expect there to be ups and downs, not least when it comes to finances.
You could have a surplus one month and a negative balance the next month. A business credit line comparison can help you find a source of finance to keep your cashflow going day to day. There are several options available to business owners and the right one will depend on individual needs and circumstances, so it is a good idea to carry out a business credit lines comparison before choosing anything.
Depending on the amount of funding the business needs to either get started or move forward, there are a range of business loans available. Loans can be secured or unsecured but the terms of each type of loan will be different, so a business credit lines comparison is essential.
A secured business loan will put a business asset at risk, but it could be an option if you need funds to purchase an item of equipment or machinery or to move into a new line of business. If the new line of business is not successful and you are unable to pay back the secured loan, you would lose the equipment or machinery.
However, if you have made the purchase just for that new venture, it should not harm your existing, successful operations if you no longer have use of the equipment or machinery. In this instance, you may wish to consider a lease instead of taking a loan to purchase the item you need as it will be much easier and less costly to give the item back if the new venture is unsuccessful. This approach should have less of an effect on your access to business credit in the future as you will not have defaulted on a loan.
Unsecured business loans work in a similar way to a personal loan in that to obtain one, you will need to demonstrate a level of income, after other commitments, which shows you can afford to make the repayments. You will need to show a history and your business accounts to the lender as well as detailed forecasts for the future. Just as with a secured loan, you should compare business credit lines and the products offered before making a decision.
In some cases, business credit cards may best be sourced from the bank where your business account is held. The bank will be able to see how you run your finances and what income and expenditure you have from your account, and often a credit card will be offered as part of the package. Credit cards can offer some short-term finance, but they can be a little restrictive and attract high interest rates.
A business credit line is more akin to revolving capital and works in a similar way to a credit card, the main difference being that it will offer access to cash which a credit card will not in most circumstances. You can sometimes benefit from a lower annual percentage rate (APR) on a business credit line than you might get from a credit card.
The flexibility of a business credit line is what makes it more attractive than a loan as although you receive credit up to a certain amount, you can withdraw smaller amounts as and when you need it rather than receiving the whole amount up front. It can therefore be useful if you need to fund the purchase of inventory or your monthly payroll. You might find that there is no fee for individual transactions, but there is likely to be a set up fee and of course, you will pay interest on what you borrow.
As with a loan, a business credit line can be secured or unsecured and the security works in the same way. A business asset is put up as collateral with a secured line of credit and with an unsecured line of credit, personal assurances or guarantees will be required instead. There are risks with both secured and unsecured options and again, it is worth getting advice and completing a business credit line comparison to assist your choice.
The best option for your business depends on a number of factors such as the type of business you have and what kind of expenditure you need to cover; is it day to day cash flow, a new venture or a large purchase? How large is your business and do you have employees? Consider all of these factors as part of your business credit comparison as they are factors that lenders will be interested in.
You might also find it helpful to get some specific advice from a professional regarding your own circumstances. They can help you identify whether you should be looking for a loan, credit card or another type of finance and then you can narrow down your search when you complete your business credit lines comparison.
– Regular access to short-term capital is required for general business expenses
– You run a seasonal business and need financial help during from the slower season which will bridge the gap to the busier season
– You want access to additional capital in case you need to make quick decisions on investments, such as to win a new customer contract, for example.
The business credit line can give you access to cash as and when you need it, rather than upfront. If you needed more, or less, than you had borrowed through a loan, this could cause problems for the business either in terms of securing more credit or having surplus credit which the business needs to repay.