equity is a form of business loan
A business line of equity is a form of business loan, which gives flexibility that most standard business loans do not. A line of equity works much like a revolving credit card. With a business line of equity, you are able to borrow up to a pre-determined limit, pay interest on the portion of cash you borrow, and then pay interest on the remaining amount over the course of the agreement. In most cases, a line of equity is used as a method of raising additional capital for day-to-day operations. Businesses may also use lines of equity for short-term financing needs.
In order to qualify for a business line of equity, your business must be registered with the Small Business Administration or SBA. The SBA will verify that the company meets a number of criteria, including a maximum potential credit limit, specific operating procedures, and accurate tax information. In addition, your company must have its own phone number and fax line. Once the company has met these basic requirements, it will be reviewed by the lender to determine if it is an appropriate solution to meet your needs. If it is determined that your business qualifies for a business line, here are some important things to consider before applying.
business line can be a very useful financial tool for any business owner
. However, because the lender determines the credit history of your business, many small businesses mistakenly believe that the lender will review their credit history prior to approving a line of equity for their company. This is not true. Although all lenders will look at your credit history, they will not consider a poor credit history as a prerequisite to lending money. As a result, many small businesses mistakenly believe they will not qualify for a business line if they have poor credit.
Because the SBA and other professional organizations have specific guidelines regarding the approval of lines of equity for businesses, it is critical to fully understand these rules prior to applying. These organizations also have requirements for the number of available lines of credit, a business line provides. Many times, these requirements are lower than what a typical consumer would face. Keep in mind that although you will most likely need to obtain a working capital line of equity, this amount will not be considered a requirement for the approval of a business line. While you will have to provide a certain level of collateral for your business line, the amount will not be a prerequisite for obtaining approval.
A business line does not always require a term loan
A term loan is a loan where the lender has the right to charge a fee equal to 30% of the funds remaining on the line until the loan is paid off completely. A business line, on the other hand, does not have such restrictions placed on its use. Therefore, a line of equity is very useful when it can help a business to obtain the funding it needs to grow and as such, should be considered for acquisition by investors. Investors who purchase a business line, however, may need to pay a fee equal to the amount they purchase the line for.
Before working with a fixed capital source to acquire capital, entrepreneurs should first work with an experienced accountant to prepare financial documents for their company. This includes everything from the initial deposit, to whether the business line should be funded with a secured or unsecured loan. Working with an accountant can also allow entrepreneurs to determine their ideal financing scenario.