More and more Business Loans lenders now introducing Line of credit for Businesses.
Above video discuss how the line of credit works. Most business leaders in Australian now providing a line of credit solutions as a replacement of unsecured business loans.
A line of credit is an arrangement where a bank offers a maximum loan amount that the borrower can draw upon at any time. The borrower, which can be an individual business or government entity, has the flexibility to take out as much as they want up to the maximum amount. Lines of credit have a couple of important advantages for us. Borrowers are only charged interest on the funds they actually draw. This is what differentiates lines of credit from traditional loans. Also, the interest rate, which is typically variable, is often lower than that of a one time loan. Take Kevin, who owns his own business and therefore has irregular income from month to month.
He applies at the bank for a personal line of credit worth $10000 just in case he runs low on cash for a period of time. After checking his credit history, the bank agrees. If Evan only draws $1000 from his credit line, he’s only charged interest on that withdrawal amount.
He sleeps well at night, knowing that $9000 of credit is available in an emergency. If he took out a traditional loan on this amount, he would be charged interest on the entire loan amount for $10000. Whether he uses the funds or not while his personal lines of credit are unsecured so they don’t require collateral. Your credit card is an example of an unsecured line of credit.
The popular home equity line of credit is an example of a secure line of credit where the bank places a lean on your property.