One of the most well-known types of busines loans is a business line of credit. With a business line of credit, a creditor lends you a specific amount of money that can be drawn from on an as-needed basis. There are two different types of business lines of credit: fixed or revolving, where the latter resets after the balance is paid in full, similar to how a credit card works.
Lines of credit are available from a variety of lenders, but commercial banks offer the best interest rates and the longest time between renewals.
Typical uses of business lines of credit:
- Pay for recurring operating expenses
- Tide over cash flow while waiting for customers to pay you
- Cover seasonal cash flow droughts
- Pay for unexpected situations or emergencies
- Lines of credit create a cushion in case of a cash flow emergency, and come in handy when you need money quickly. Banks usually offer both secured and unsecured credit lines. For secured lines, you have to put down some assets as collateral.
However, line of credit are just as hard, if not harder, to qualify for than a bank term loan. And they take just as long to process. But if you have the time to wait for the bank’s decision and feel you have a good chance of securing a bank product, this is a great type of business loan to have.