A line of credit is a type of loan extended to the best businesses at the bank. Typically, a small business needs cash for short term reasons (less than one year) to maximize operations. A line of credit is set up for a maximum amount and the small business owner is allowed to transfer funds from the line of credit to the business’s bank account at will. Examples of the value of this loan are seasonal operations such as landscaping or retail operations relying on holiday sales.
In financing a small business, there are a multitude of tools available. One way to finance inventory is by using the 30 day pay program with your vendors. Another tool is seasonal payment program and a third tool is exercising a line of credit tied to receivables or sales history.
There are many different types of bank loans, each having their own respective purpose. All bank loans are categorized into two distinct groupings; secured and unsecured loans. Within in each category of loans there are several different sub-types of bank notes used to make a loan. Both categories require the owner of the small business to provide a personal guarantee to ensure the loan is paid back.
