If you’re in business, you’ve got options. Which is best for you and your business?
First, let’s break down what a business line of credit is.
In some ways, a business line of credit is a lot like a personal credit card (more on that in a bit). You, the business owner, applies for the line of credit and are granted a credit limit. You can borrow any amount up to that limit. You’re charged interest only on what you actually borrow or based on the terms and conditions of your line of credit agreement. You pay back the money in monthly payments.
A business line of credit is different from a personal credit card because the terms – the interest rate and credit limit – are typically better. The terms are better because a business line of credit is a secured loan, meaning the owner puts up collateral. A credit card, even a business credit card, is usually an unsecured loan with no collateral and a higher interest rate and lower credit limit.
When is a business line of credit right for my business?
Say your business is taking off and you need access to money right away to support your business’s growth, but you don’t want to take out a loan for the full amount. A business line of credit can be ideal in this situation: you secure a business line of credit and use the cash for new equipment or supplies.
It’s a great option for unexpected expenses because you have access to it again and again, only paying interest on the amount borrowed. You can pay it down and borrow again when you need to.
Another benefit of a business line of credit is that it can improve your business’s credit score. Your business has a credit score, just like an individual person does. An excellent credit score can help your business grow and prosper going forward.
When is a business credit card the right call for my business?
If you’re just starting out with your new business (congratulations, by the way) you may not yet have a proven financial history or inventory and account receivables to borrow against. In that case, a credit card can be good for office supplies and office equipment. Credit cards are a great way to build up excellent business credit. They’re just not as flexible as a line of credit.
If you have any questions about what a business line of credit could do for you, or what the rates are here at Guaranty Bank, reach out to us by calling one of our loan experts today!