Line of Credit

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Corporate Line of Credit

To survive in today’s ever changing business environment most companies will have to get a corporate line of credit. A corporate line of credit is a source of financing that a business can tap into every time it needs to.

A line of credit is an agreement between a firm and lender under which the lender makes a set amount of credit available for the business to use as it sees fit. The lender charges interest on the line of credit but only on the credit that the company actually uses.

The big advantage to a corporate line of credit is that the company can take advantage of when it needs it for example when it can’t cover expenses. Unlike a loan, the company doesn’t have to pay off the money unless it actually uses the money. A corporate line of credit can sometimes make the difference between a business’s survival and its demise.

Sources of Corporate Lines of Credit

There are many sources of corporate lines of credit available for business. Banks make a variety of lines of credit available including business credit, credit cards, checking credit and cash lines of credit.

Many business checking accounts come with lines of credit that will cover checks and payments when there isn’t enough money in the account. Most banks will make corporate lines of credit available if a firm runs a lot of money through its accounts.

There are also hard money lenders and other direct lenders that operate online. These lenders will make lines of credit that might put money directly into a bank account available. Hard money lines of credit usually come with a very high interest rate. An advantage to these lines of credit is that the can be easy and quick to get.

Investors and Corporate Lines of Credit

One of the big advantages to forming a corporation is that it is easier to find investors who will make lines of credit available. A corporation with proven cash flow or a good business plan should be able to get lines of credit from venture capitalists and investment bankers.

To get investment capital a company will have to be legally incorporated and have a good business plan. The owners of the company may also have to surrender some control to the investors.

Equity Credit for Corporations

Another line of credit that corporations can take advantage of is equity credit. If the corporation owns real estate it can borrow against the equity in the real estate. The equity is the difference between the value of the property and the mortgage. If the value of the property exceeds the mortgage, the company has equity in the real estate.

There are also private equity lenders that will give lines of credit secured by other kinds of collateral such as equipment, inventory and accounts receivable. Corporate lines of credit from private equity lenders are usually more expensive because they come with higher interest rates.

The drawback to equity lines of credit is that the borrower can loose the property used for collateral if the line of credit is not paid off.