subject: How a Secured Line of Credit Works and Can Be Used by a Business [print this page] How a Secured Line of Credit Works and Can Be Used by a Business
You can obtain additional funds for your business through a secured line of credit. By availing such a credit line, you will be able to purchase business equipment, office supplies, furniture etc or refurbish your office space. You can draw up as much money as you want depending on the maximum limit and your requirement. The remaining amount in your credit line will be accessible for future use, so having a secured credit line will save you the hassle of applying for new loans each time you need one. Want to know more about this option of getting credit, here are a few questions answered to help you understand this financial product better.
What is collateral?
The most important thing in a secured line of credit is the collateral you place for the loan you intend to borrow. The collateral can be your accounts receivable or inventory, an automobile or your business property that has value in the market. Generally, the lender estimates the worth of the property and loans as a percentage of that value. Since anything placed as collateral is usually worth a lot of money, your line of credit is also big generally. However, you will have to ensure that you do not default on your payments, because the lender can claim your property in such a situation.
What can you do with a secured credit line?
With a secured credit line, you will be able to receive a larger amount to finance your business or an important project. In addition to this, the interest rate on a secured credit line is relatively lower than that of other loans. The more value your collateral holds, the greater a loan amount will be released to you. An important factor that determines the loan amount your lender will give you is the credit rating of your business. Also, as the credit rating improves consistently over a period of time, your chances of getting a better credit line improves.
What are the features of a secured line of credit?
Lenders give credit lines on different terms to various businesses, and one feature that is bound to vary is the repayment terms. Some lenders allow you to make payments only towards the interest and repay the principal sum of money you borrow as a lump sum in a specified time period. Most credit lines for businesses have an annual fee, and the rate of interest for these is generally low. A few lenders charge prepayment penalties while others offer flexible terms to their borrowers. It is important that you enquire with your secured credit line lender about the repayment terms that will be applicable to you.
If you use a secured line of credit with care, you will have sufficient funds to manage and grow your business. Before you take a secured credit line, you should talk with a financial consultant. Also, if you are looking to lien a property, hire the services of a good mortgage broker who will be able to connect you with the right lender for your financial needs.
