When you are looking for ways to increase the start-up capital of the business you are putting up, there are many financial institutions that offer type of loans that will fit your business needs. These entities includes commercial, trust and saving banks; straight commercial lenders and even credit card companies for individuals who are holding high valued credit cards with a very high credit limitation. When contemplating in filing for a business loan, you must first know and understand the various types of business loans available on the market today. This will enable you to review and select the most appropriate loan package that would suit your need. Line-of-Credit is one type of business loan available from any loan company that exists in the market today.
Line-of-Credit loans are business loans more suited for small businesses. It is a kind of a bank loan that is more permanent in nature because it basically protects the business from cash flow emergencies. Line-of-credit loans are usually intended for the purchase of inventory goods and payment for operational cost of the business. They are never intended for the purchase of any fixed assets such as business equipment or properties for the business. The main function of line-of-credit loan is to extend or automatically increase the checking account of the business to a specific amount but enough to cover any payment shortage transaction made by the business. The extended cash is actually a form of cash advance from the lending institution and this of course will incur interest from the time the cash was advanced by the bank until such time it’s paid back in full.
In most banks and lending companies, line-of-credit incurs the least interest rate and the loan is sometime considered to be a form of flexible loans because of the following reasons. First, the borrowers are given the right to cancel the loan in the event their businesses are compromised; second, interest remittances can be done on a monthly basis or depending on what was agreed on between the bank and the borrower. Third and most important of all, the principal amount can be paid off at the borrower’s convenience. Because of the loan’s flexibility, most lending institutions only provides a one year term on its applicability. However there can be an agreement between the borrower and the lender to include a condition on the contract allowing an automatic renewal of the loan but with an annual fee to pay by the borrower.
Like any other forms of financial loan packages, line-of-credit is neither healthy nor unhealthy for businesses and the advantage or disadvantage of this loan to any commercial trade depends entirely on how it is used. Just like in any situation, anything excessive can be bad and excessive borrowing against line-of-credit can be bad for business. As in the case with any other type of business loan, borrowers should seriously study the terms and conditions of loans including fees, interest rates and repayment schedules. A serious and thorough study of loan packages you intend to avail of will protect you from any legal problems that may occur in the future.