Many company owners are familiar with unsecured lines of credit for business, but a personal line of credit may be less well known. What are the pros and cons of personal credit lines? When would business owners decide to use one?
What Personal Lines of Credit Are
If you’ve used business credit before, you can imagine the same thing, except backed by personal assets rather than a business credit score. If this is your first time hearing about credit lines, you need a bit more explanation.
Imagine a financing option that works like a credit card but has the advantages of a personal loan. That’s essentially what a line of credit is for. It gives you access to a set amount of funds, but unlike a loan, you only need to pay interest on the money when you use it to make a purchase.
A line of credit has a credit limit or maximum amount you can draw from. It also has revolving funds, which means that as you pay back the money, you can use it again for different purchases.
How a Line of Credit Compares to a Credit Card
For average consumers, a credit card may be enough for making purchases. For business owners, though, the terms aren’t good enough to be viable. Lines of credit provide a larger credit cap that can cover bigger business needs, along with lower interest rates that don’t skyrocket as much when you have to carry a balance over for several months.
What kinds of businesses can benefit? Any company that needs access to flexible, fast working capital. The way you use the funds can vary significantly, from taking care of lease payments to covering payroll. House flippers often use personal lines of credit to remodel properties.
The Differences Between an Unsecured Line of Credit and a Personal Line of Credit
Unsecured lines of credit for businesses generally provide larger funding amounts and don’t require collateral. For personal credit, it’s usually necessary to use your home as collateral, which is why this option is also known as a home equity line of credit or HELOC financing.
HELOC options can be easier to qualify for if your business is new or your revenue is still small. To get this type of line of credit, you need to have good personal credit. You can also use the funds for personal needs, not just business needs, including medical expenses or ongoing education.
Seek Expert Assistance
Your credit score plays a key role when trying to make large purchases, get financing, increase your credit limits, and much more. At Commercial One Group, we understand that many people and businesses do not have perfect credit, through no fault of their own. To get your credit ratings on the right path, we offer credit repair and improvement services in three easy steps.