16 May 2024 | By INDIE
Your entrepreneurial ambitions can now be fulfilled with the help of a line of credit loan. Starting and managing a small business generally needs funding. As an entrepreneur, you must explore different options for securing the required working capital to cover daily expenditures. Consider using a personal line of credit as a potential source to cover the said expenses. But before applying for a credit line, you must weigh the benefits and disadvantages of this action carefully.
A credit line is a revolving credit account through which you can borrow a certain sum up to a fixed limit. The interest will be usually charged only on the borrowed loan amount, and you can borrow funds as per requirement. These lines of credit are generally unsecured. These credits don’t need collateral, i.e. a valuable asset that will ensure loan approval. Whereas the loans/credits that are secured allow banks to acquire the collateral if a borrower fails to repay. The lack of requirement for collateral makes personal lines of credit a suitable loan for freelancers. Apart from that, there are numerous other reasons that you should consider using your credit line to begin your journey as an entrepreneur.
Also Read: Line of Credit vs Personal Loan! Which one is better?
Applying for personal credit lines is quicker and less complicated than securing a business loan. This aspect makes credit lines a convenient source for business executives who regularly need funds to run their day-to-day businesses. Apart from entrepreneurs, they are also accessible to the self-employed. If you are one, you can apply for personal loans for freelancers to finance an expensive purchase.
Term loans require you to make fixed monthly payments. On the other hand, a business line of credit may need you to repay only the borrowed amount, reducing the overall interest rate cost. Furthermore, you can also save on the interest rate by repaying the loan early. However, it ultimately depends on your creditworthiness. The banks may charge you an interest rate on a personal credit line lower than some business loans if you have a high credit score.
You can use a personal line of credit to meet different business requirements. So, if you own a new business and your credit history is not established, a personal credit line might help more than business loans. This is the case because business loans generally require an established track record. The credit line can help cover unexpected expenditures like seizing growth opportunities and managing the cash flow.
Personal credit lines are riskier even if they don’t require collateral because a failure to repay the loan will affect your credit score negatively. A low credit score will give the impression that your creditworthiness is low. And, if the banks feel you are not creditworthy, your chances of getting a secured loan will be low.
The credit limit on a personal credit line is generally lower than what you get through traditional business financing methods like a business loan. Hence, you must plan your finances carefully because the funds through a credit line may not meet your business needs.
Mixing personal and business finances is not a financially prudent move. Doing so may raise complications during tax season when you arrange your financial records.
Based on the information above, You should decide whether to opt for a personal credit line for your business after careful deliberation. Thus, contact a business or financial advisor to evaluate your situation. Asses alternative business funding options like small business grants and business loans at the same time. The final decision should align with your risk tolerance, financial strategy, and business goals.
