There is no shortage of financing options available to small business owners these days. Whether you are searching for a traditional loan or are in need of an alternative financing solution, it can be helpful to know the ins and outs before you commit. One way you can improve your company’s access to capital is by taking out lines of credit. While there are similarities between business credit lines and personal credit, there are also a few key points that can be good to review in advance.

Understanding Secured Credit Lines

When first setting out, you’re going to hear about two main types of credit lines. A secured line, for example, uses collateral. A borrower will select assets of a specific value to use as collateral on the credit line. Due to the nature of this type of financing, the asset does not need to follow traditional standards. Lenders will typically accept assets such as unpaid invoices of a specific value or inventory that meets the requirements. To learn more about what works as collateral, speak with a lender that specializes in this financing option.

Understanding Unsecured Credit Lines

The other main option for lines of credit is an unsecured line. This is the more popular choice among small business owners, as no collateral is required in order to obtain this financing. For this type of credit line, the lender assumes the greater risk. This means that the limits involved with the credit will be lower and the interest rates will be higher. This helps to protect the interests of the lender in the event that the borrower is unable to make payments in accordance with the determined scheduled.

Picking the Best Credit Option

Deciding between a secured and unsecured credit line comes down to a few key factors. If you have assets and feel confident in your ability to pay the loan back, a secured line might be the best fit. Unsecured options are appealing because there’s no need for collateral, but a simple mistake can lead to serious financial repercussions and fees. Weigh out both of the choices and forecast your budget to see if you’re likely to see enough sales to pay back the loan in a timely manner.

Understanding the financing solutions available to you is key to the overall success of your business. Both secured and unsecured lines of credit offer advantages. Determine which is the right fit for you and see how this simple move can yield positive results.