Many of us understand how helpful credit can be when it comes to getting what we need for our small businesses. For most business owners, paying for everything out of pocket would be neither practical nor feasible. Obtaining a commercial line of credit can help business owners keep their business afloat without using cash for everything. This frees up funds that may be better used in other areas. A line of credit can be extremely beneficial for business owners who need a way to finance the day to date operation of their businesses as well as a way to prepare for the unexpected.

What is a Commercial Line of Credit?

A commercial line of credit is very similar to a consumer credit card, however, the funds must be used for business or commercial purposes. A business can withdraw funds from a predetermined amount of credit made available to them. The business owner pays a variable interest rate on the amount borrowed. Additional maintenance and availability fees may apply as well. Like revolving credit, a business can use a portion of the funding and pay it back, which will increase the availability of funds. The cost of using commercial credit is based on the risk as well as the size of the line of credit. Business owners should note that qualifying for a commercial line of credit can be difficult because lenders take into consideration company income,  assets, and much more. 

Types of Commercial Lines of Credit

There are various forms of commercial credit. However, the most common types of commercial credit are usually either secured or unsecured. Secured lines of credit require a business owner to have collateral commensurate to the line of credit. The collateral can be corporate or personal and is used as security for the lender if a business defaults on its payments. Conversely, an unsecured line of credit doesn’t require a business to produce collateral for the funding it receives. Instead, the business is required to make the agreed-upon payments as outlined by the terms of the credit. However, if the business defaults on its payments, the business owner can be sued by the lender which could result in the demise of the business. Both lines of credit carry risks for the business owner and should be taken seriously before being entered into. 

The experts at Gipson Commercial Solutions have a wealth of experience with commercial lending and know how to help business owners find the right products for their financing needs. Our adherence to high professional standards and exceptional customer service practices make us a renowned industry leader.