When you need a line of credit for your organization, there are several options you can use. Knowing your options can help you decide the best course of action for your business so you can get the financing you need to be successful.
Traditional Credit Lines
Traditional lines of credit are usually used by experienced business owners with business models proven to be successful. These credit lines typically come from banks that organizations use for their regular banking. The requirements for these credit lines can be strict because the terms are often highly favorable for the businesses.
Short-Term Credit Lines
Short-term lines of credit are similar to traditional credit lines but have different terms. Since they are short-term, they typically have higher interest rates, lower maximum credit, faster processing, and more flexible application requirements. These credit lines are often offered by alternative lenders, which can be useful for organizations that may not meet requirements for traditional lines of credit.
Equipment-Backed Credit Lines
Equipment-backed credit lines are lines of credit that use equipment in your organization as collateral. The collateral is a guarantee of some type of payment for the credit. If your organization defaults on repayment, the equipment becomes the property of the lender. The line of credit offered is usually aligned with the value of the equipment being used as collateral.
Invoice-Backed Credit Lines
Invoice-backed credit lines use payments owed to you by customers as collateral. The lender will take possession of the invoice and collect payment from the customer in exchange for the credit to your organization. In some cases, you may be responsible for repaying the credit if the customer is unable to make payments. That depends on the terms of the agreement between you and the lender.
No matter what you plan to do with your credit line, it’s important to make sure that the arrangement you make with a lender is beneficial to you as well as the lender. Matching the right kind of credit line with your organization will help ensure that you can do what’s needed for your organization to be successful.