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Understanding

Lines of Credit

Every small business owner would like to see consistent revenue throughout the year. But for some industries, that’s a hard goal to reach. Recreation, land management, retail, construction, and other types of businesses can all be constrained by seasonal revenue cycles. Any business that experiences fluctuations throughout the year can smooth out the financial ups and downs with a line of credit.

Lines of credit can be secured on a company’s assets, or unsecured with qualifying credit. Both lines provide an additional source of capital that can be used as needed and replenished on an ongoing basis. Much like a business credit card, a line of credit is an account that businesses can use to access funds up to a specified limit. Payments into the account free up funds to use down the road. Lines of credit, however, typically have higher credit limits and lower interest rates than most credit cards.

how to

Effectively Apply Funds

Lines of credit are used as additional working capital to address a business’s expenses. Expenses could be more difficult to manage due to decreased revenue in the off-season. A new project might require more personnel, inventory, supplies, or materials the business doesn’t have cash on hand to cover. Both instances can be easily handled with a line of credit.

When business picks up again or the new project succeeds in boosting revenue, cash can go back into the line of credit to be used later on. Borrow when business is slow and pay back when business is booming. While many lines of credit are revolving, meaning the funds can be accessed again and again, non-revolving, no-recourse, and unsecured lines are available. Ask our brokers for more details.

Lines of credit Funding Options

Retail

Retail businesses often rely on the fourth quarter to get them through the rest of the year. During those slow periods, a line of credit can help retail businesses handle expenses until revenue picks up again. Bring in inventory and hire staff to cover the busy holidays with a line of credit.

Shipping

It’s not always easy to predict the market. Local shortages of goods can boost demand for long-distance orders unexpectedly. Be ready for the rush with a working capital line of credit. Hire drivers, expand storage, and pay mileage all without having to take out a new loan each time you need extra cash.

Recreation

Regardless of where you are in the country, weather patterns can be unpredictable. Unseasonal rains can dampen your busy season and unexpected highs could melt your revenue stream. Be ready to handle any market condition when you back your cash flow up with a small business line of credit.

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FAQS

Q. What is an unsecured line of credit?

Secured lines of credit use the value of a business’s assets to secure the loan. This lets the lender seize the asset in case of default on the loan. Unsecured lines keep those assets off the table, but they’re riskier for lenders. Because of lender risk, unsecured lines usually require a good credit score to qualify.

Q. Revolving vs. non-revolving lines of credit?

A revolving line of credit works like a credit card. You can borrow what you need from the credit limit and pay back into that line to free up more credit. Payments made to a non-revolving line don’t free up the balance. When the funds are exhausted, the account is closed.

Q. When is a line of credit not a good fit?

Lines of credit are used for working capital expenses in most cases. While there are lines of credit designed for real estate, most businesses will benefit more from a commercial mortgage or hard money loan if they want to buy property. Similarly, equipment loans are normally better equipped to address a business’s equipment needs than a line of credit.

Q. Where can I get a line of credit for my small business?

Not every business is the same and not every lender is either. What works for your small business might not be ideal for others. That’s why it’s a good idea to get help from a broker. Brokers can provide advice and have access to deals only they can offer. If you’re looking for a line of credit, talk to our brokers today.