Small Businesses and home based businesses usually have cash flow problems that prevent them to grow. Such situation occurs due to the lack of finance needed to bridge the needs of the different parts of a business project. It is not uncommon to see a small business loosing a deal due to not having the necessary money to fund the production for a certain large order from a new client. That is when secured lines of credit come in handy.
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Getting a secured line of credit is not as complicated as it may seem and it can easily provide all the money needed to solve a cash flow problem once and forever. Once approved you will not need to obtain finance again till your business grows to new heights because secured lines of credit provide all the financing and flexibility that small business need.
How Do Lines Of Credit Work
Lines of Credit are revolving accounts that provide funds for the borrower up to a certain defined credit limit that cannot be bypassed without having to pay penalty fees or suffering the immediate block of the account. Yet, up to this limit, the borrower can withdraw as much money as he needs and as many times as he wants without having to apply again in order to obtain the money.
The repayment of the money is very flexible with minimum payments (just like with credit cards) usually consistent only of the interests on the money borrowed that are charged only when and for the money that is withdrawn and not when the money remains available. As long as the credit limit is not reached, the borrower can withdraw any amount again even immediately after repaying.
Different Security Alternatives
The line of credit can be secured with different assets. If you are an individual, the most common forms of collateral are real estate properties and the available equity on any property that has already been used as collateral. The most common financial tool that uses equity as collateral is the home equity line of credit that provides high credit limits (it depends on the amount of available equity) and low variable interest rates.
When it comes to small businesses, there are other assets besides real estate properties that can be used as collateral for lines of credit. An interesting alternative are the payments that clients made with credit cards. The companies that process payments with credit cards for you usually have these lines of credit available that are secured with the future sells of the company.
Since the financial institution can calculate an average of payments that you receive through them, they can easily provide you financing knowing that they can debit any amount you decide to pay or at least the minimum payments consistent only on the interest rates generated by the money withdrawn from your line of credit.
Whichever source of funds you decide to use, secured lines of credit provide both great flexibility for solving cash flow difficulties and at the same time inexpensive financing because they charge low interest rates and provide high credit limits with low minimum payments letting you decide how and when you want to repay the money you withdraw in full.