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Private Equity Line of Credit

A line of credit can be secured by collateral just like a loan. There are lenders called private equity lenders who do make lines of credit available secured by collateral other than real estate.

Private equity lenders will make secured lines of credit available to business. These credit lines are called equity lines of credit because they are secured by equity in some sort of property such as equipment or inventory.

Businesses that have collateral to put up will probably be able to get a private equity line of credit. Such a line of credit will usually come with a high credit rate and very strict terms but it can be very easy to get.

Advantages to Private Equity Lines of Credit 

The biggest advantage to a private equity line of credit is that it is very easy to get. A business probably won’t have to submit to a credit check or income verification to get such a credit line.
All it will have to do is own some sort of property it can put up as collateral.

A business can get a private equity line of credit with bad credit and no income verification because the credit line is secured by the collateral. The lender will take possession of the collateral if the line of credit isn’t paid.

A business can get a private equity line of credit very fast but it will probably have to verify that it has the property. The private equity lender may not make credit available until its representatives have actually inspected the property.

Some private equity lenders called inventory lenders or factors may actually take possession of the inventory and store it at their warehouse as security. The only way the business can get the property back is to pay off the line of credit.

Once the property has verified it shouldn’t take very long for the business to get the money. Most private equity lenders will deposit funds directly into the business’s accounts.

Private Equity Line of Credit Drawbacks

The amount of a private equity line of credit is usually limited to a percentage of the value of the collateral. The lender does this so they can make a profit if the borrower doesn’t pay.

Private equity lines of credit can be opened fairly quickly but lenders may insist on quick payment. A business may only have a short amount of time usually 120 days to pay off the equity line of credit.

The business will lose possession and use of the property if it can’t or won’t pay back the line of credit. Without inventory or equipment the business may not be able to operate.

Accounts Receivable Private Equity Line of Credit

An interesting variation on the private equity line of credit is the accounts receivable line of credit. In this line of credit unpaid customer invoices or accounts receivable are used as collateral for a line of credit.

If the line of credit isn’t paid off the lender gets the right to collect on those unpaid invoices. An accounts receivable line of credit might be a better deal for some businesses.