Credit Lines: A Comparison For Small Business Owners

January 25, 2018 by CNH Finance, LP in category “Financing”

Business credit lines are essential to long-term success. However, not all credit lines are the same. Understanding the difference between the various types of credit lines can help entrepreneurs decide which one is the right fit for both short and extended plans.

Secured Business Credit Lines

Secured credit is typically offered to new and small businesses by banks and traditional providers. Since most emerging and small businesses do not have the incredibly high credit ratings or huge financial records of major corporations, banks a similar lending institutions require some form of security. In financial terms, this means collateral. Businesses must put property and large assets up as collateral in order to secure lines of credit, which usually equal some percentage of their actual value. There are often high fees and interest rates associated with secured lines of credit, and rates can rarely be negotiated down.

Unsecured Credit Lines

Unsecured lines of credit are very rare, and are usually reserved for businesses with extremely high performance ratings. As you might suspect, unsecured business lines of credit do not require collateral. The trade off with unsecured lines of credit is that introductory rates usually start at zero percent, and then skyrocket after a set period of time, or after a specific amount of capital is spent. For qualifying small businesses, unsecured lines of credit can become a heavy financial burden in the long run.

Revolving Credit Lines

Revolving lines of credit are extremely useful to businesses of all sizes. Revolving lines of credit work just like personal credit. Businesses access the capital they need, which can be used for any purpose, and then replenish the amount available by paying off the balance. Much like unsecured lines of credit, new and small business owners should take care to read the fine print of the agreement to see if interest rates go up after a certain period of time, and if the line of credit can be increased beyond the initial amount.

Asset Based Credit Lines

Asset based lines of credit are perhaps the most flexible sources of working capital for new and small businesses. Asset based lines of credit are revolving, and are not available through traditional providers. Instead of relying on financial statements, asset based lending is structured around the value of assets such as equipment, receivables, and more. As a business acquires more assets or increases sales, the amount of credit available grows.

At CNH Finance, we specialize in revolving asset based credit lines to provide businesses across all industries with the capital and flexibility they need to grow and thrive in today’s marketplace.

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