Just like other small business loans, it’s important to consider the following factors before applying for a line of credit:
- How much money does your business need? (An estimate would be fine.)
- Are you capable of meeting the repayment terms?
- How will a business line of credit affect your daily business operations?
To make the most out of your business line of credit, here are four things you should consider:
1. Unsecured or Secured Line of Credit
Before qualifying, you need to choose between an unsecured or secured business line of credit. For a secured line of credit, you need to pledge business assets in order to secure the loan. If you fail to pay back the loan, the lender can repossess your assets. For an unsecured line of credit, on the other hand, you don’t need collateral to secure the funds you’re going to borrow.
For a secured line of credit, you may be able to borrow a larger sum of money with lower interest rates since the loan is secured by collateral. For unsecured business line of credit, you can access the funds faster since the application process is simpler. However, the interest rate is usually higher.
2. Interest Rate
The interest rate is one of the most important factors to consider when taking out a loan. Generally, the interest starts to accumulate as soon as you withdraw funds from your credit line. Before finalizing your loan application, make sure you completely understand the APR offered by potential lenders.
When applying for business loans, make sure to read the fine print when it comes to fees. Some lenders charge an annual fee to keep your bank account open even if you aren’t using your credit line. There may also be opening fees (when opening your account) or closing fees. Furthermore, lenders may charge a transaction fee every time you withdraw or payback the loan. A reputable lender should promote transparency and inform you of any possible fees.
You need to find out how often the lender needs to be paid and how long the repayment period is. There are lenders that implement the clean-up requirement or pay-down provision. They require borrowers to pay the entire loan balance within a short period of time at least once a year. Not all traditional lenders implement this policy, so make sure to ask potential lenders about this.
To know more about a business line of credit or other types of loans, visit SMB Compass. We offer a variety of loan programs for small businesses. Don’t hesitate to give us a call at (888) 853-8922or email us at firstname.lastname@example.org to talk to a lending expert today.