The Basics of Lines of Credit

Choosing the type of financing you will use for your new business is often one of the biggest decisions you will have to make. This can feel stressful for some, but the reality is that with a little research it can be easy to decide what kind of financing will work best for you and your new business.

The Basics

Lines of credit are a type of financing that are both a loan, and a revolving line of credit. If you are unfamiliar with what revolving credit is, another common type of revolving credit that many use is a credit card. With lines of credit you are typically offered a credit line up to a predetermined amount. Once you have it, you can spend as little or as much money as you need to at any given time. Also, these funds can be used for any business expense that you need them for. You will be expected to then pay back whatever you have spent, and you will only ever be expected to pay interest on what you have spent. Additionally, there are two common types of lines of credit that are offered, secured lines, which involve collateral, and unsecured lines, which do not.

The Reasons You Should Try a Line of Credit

There can be multiple reasons why a new business owner might be interested in lines of credit over other types of loans. One of them is that lines of credit tend to be less cumbersome than traditional loans, which require you to make regular monthly payments, which can sometimes hold a new business back financially. Not only that, but a line of credit can offer you more financial freedom, since you only have to repay what you have spent, and you only have to spend as much as you absolutely need to at any given time. Lines of credit can also be a great option for those running seasonal businesses, that way you can cover gaps in cash flow while things are slow, and then depend on your line of credit less when business increases again during your busy season.

Some Last Thoughts

Selecting the right financing for your new business can feel like a daunting task at times, especially when you don’t know what your needs are going to be. The good news is, though, that with a little research and thought, it can be easy to figure out what the best option is for you.