Could a personal line of credit fund or help expand your small business goals?
Are you considering starting a new business or expanding your current one? Many entrepreneurs find it difficult to get business financing when they’re just starting out. Business loans are hard to secure in this economy, but you may qualify for a personal line of credit.
When it comes to securing financing for your business, you have many options from small loans to credit cards – but a personal line of credit may better meet your funding needs.
What is a Personal Line of Credit?
A personal line of credit is an unsecured loan from a financial institution or direct lender. This type of funding is beneficial to business owners, because it can be used as a revolving account. Business owners can borrow against it at any time, without having to apply for additional funding.
The interest on a personal line of credit is higher than a mortgage or home equity line, but is often more affordable than high-interest rate credit cards.
With a personal line of credit, you’ll be given a credit limit which you cannot exceed. You can however use fewer funds than you’ve been approved for. With a loan, you borrow the entire sum at one time, and are responsible for paying back the entire sum by your repayment date. With a personal line of credit, you only owe what you use.
With a personal line of credit, you only pay interest on your outstanding balance, not the entire line amount. Personal lines of credit are unsecured, unlike home equity lines of credit which are backed by your home. While a home equity line of credit could provide you with a greater amount of funding, it would be risky to use your home as collateral for your business.
Is a Personal Line of Credit a Good Idea?
Business owners balance a variety of revolving expenses – especially in the beginning of your business venture or when attempting to grow. Taking out multiple loans to cover costs doesn’t make sense. Multiple loans are difficult to manage and challenging to payoff.
With a personal line of credit, your credit line is available to you when you need it. Once you pay down your balance, the line is available for use again. This type of personal funding is beneficial, because if you never use the line you won’t owe any interest or be required to make payments on it.
Personal lines of credit are also relatively easy to acquire. The application process is quick, and approval decisions are made within minutes. This allows you to apply much needed funds towards your business quickly.
What Can I Use My Personal Line of Credit For?
Once you’ve been approved for a personal line of credit, you can use it to cover any expenses you want. However, you’re risking your personal credit rating for your business, so spend your money wisely. Use the funds on items that are essential to your business and spend what can be repaid quickly.
The best way to use your funds is to put them towards revenue-generating activities. By applying the majority of your credit line towards generating revenue, you’ll earn the funds required to pay down your debt and improve your credit score.
A personal line of credit can be used to help you achieve your small business dreams. There are risks involved with any financial product, so manage your borrowed funds wisely. By applying your funds to the right business expenses, you can grow your business and payoff your debt faster.