4 Types of Business Lines of Credit


Jeffrey Bumbales

If you own a business, chances are there’ll come a time when you need more small business capital than you’ve got. Maybe customer payments are slow to come in, or perhaps you want to expand the business. Or maybe you just want to stock up before a seasonal rush. Whatever the reason, there are a few types of business lines of credit that can help.

Lines of credit are technically loans, but with a twist. Similar to how a credit card works, these financial tools offer business owners a set amount of funds to use, or not, at their discretion. Unlike a traditional loan, the amount in your pool of available capital is there for you to use, repay, and reuse repeatedly.

Interest accrues when you use the money, according to Investopedia. You can sometimes write checks from a line of credit account, you might need to visit the financial institution, or you might have the option of a funds transfer to your business account.

Although there is really only two business line of credit categories – secured and unsecured – there are a few different options within them.

Different Types of Business Lines of Credit

#1: Traditional Secured Business Line of Credit

Secured business lines of credit rely on collateral. That is, you would put up something of value, such as business assets or real estate, as a guarantee. This guarantee means that the lending institution knows that if you default on repayment, they can claim your collateral to repay what you owe.

A secured line of credit may have better overall terms because the risk is lower. The interest rate might also be lower, repayment terms more flexible, and you may also qualify for a higher line of credit.

#2: Traditional Unsecured Business Line of Credit

Unsecured lines of credit don’t need collateral, so you won’t have to tie up any of your assets. You might also have a quicker approval time. Interest rates are often higher than secured lines of credit, and there might also be a maintenance fee that applies monthly or annually.

The SBA suggests that unsecured lines of credit might be better products than secured. They rely more on creditworthiness than years in operation, and the application process is often much less of a hassle.

#3: Real Estate Line of Credit

If you’re in real estate or want to be, there’s another product for you to think about. A real estate line of credit is similar to a personal HELOC or home equity line of credit, which is a loan that’s based on how much equity you have in a piece of real estate.

For business purposes, you can use the equity in your own home or the equity in other properties that you own to secure the loan. But there’s another option.

Real estate lines of credit come in two forms – secured and unsecured. For an unsecured real estate line of credit, the SBA explains that your FICO score is the determining factor. This allows you to buy and flip houses, staying active in the market instead of having to wait until one property sells to buy the next.

#4: Business Credit Card

Another unsecured option that the SBA recommends is the business credit card. A line of credit is already nearly identical to a credit card, but this choice has a few other perks. The main benefit is that with a credit card, nothing that you own, either for the business or personally, is tied up.

You also get quick access to cash, which is great when a line of credit might take days to transfer funds. Your payment terms are flexible too, compared to lines of credit that have set monthly payment amounts.

Getting Started With Business Lines of Credit and Other Financing Options

No matter which choice you make for your business, there are a few things that you can do to help improve your chances of getting the best deal. Keep your personal and business credit in good shape, don’t use too many credit cards (and don’t max out the ones you have), and work to show profitability.

Lines of credit are tools, like any other financial product. And while they can work for a lot of different situations, you have other options, too. Maybe you don’t have the collateral to qualify for a secured line of credit. If you haven’t been in business long, your business credit might not be strong enough to qualify. Credibly exists to give you more options.

We have non-traditional funding solutions that might fit you and your business perfectly. Contact Credibly today, and learn how we can help meet all of your working capital needs.

Or to get started, fill out our online pre-qualification request form. It’s free and easy and won’t hurt your credit.