Line of Credit

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Line of Credit
High Line of Credit

The lines of credit available to most businesses are limited in scope and amount. Many businesses will need more financing so they will seek a high line of credit.

The major limitation to lines of credit is the amount of cash flow and income that the borrower has available. Generally those with high cash flow and large incomes will be able to get much higher lines of credit.

A business should be able to get a high line of credit if it can verify that it has either the cash flow or income to cover that line of credit. A business will also have to have a good history of repaying its debts to get a high line of credit. A business with a bad credit rating will have a much harder time getting a high line of credit.

How to Get a High Line of Credit

Businesses that do a lot of business with a particular bank or finance company should be able to arrange a high line of credit from that entity. It is also possible to get a high line of credit from many online lenders such as hard money lenders and private equity lenders.

Established businesses with good credit records will have a much easier time getting a high line of credit because they are less risky. Lenders give lines of credit based upon risk, the riskier the borrower the less likely they will be to grant a line of credit.

To get a line of credit a business will have to prove that it has the cash flow, assets or income to pay off the money borrowed. Lenders will usually ask for a credit check, proof of income, bank records and perhaps receipts before granting a line of credit.

Restrictions to High Lines of Credit

High lines of credit can come with some very serious restrictions. Businesses with bad credit histories, new businesses and businesses with low cash flow will face even more restrictions on a high line of credit.

Lenders may require a business to sign an agreement that obligates them to make a payment each month to get such a loan. Some lenders will also require collateral in the form of real estate equity, equipment, inventory or accounts receivable for such a line of credit.

Many high lines of credit will come with very high interest rates. Businesses that lenders consider riskier could be required to pay a very high rate of interest on such lines of credit. Risky businesses include speculative ventures, firms with bad credit ratings, new businesses and companies with low cash flow.

Advantages to High Lines of Credit 

In spite of the restrictions there are some tremendous advantages to a high line of credit. Lines of credit are more flexible and provide businesses with more freedom.

The best thing about a line of credit is that you only borrow what you need. A borrower can only take out the money they need and leave the rest. This means that a business can limit its debt load and obligations.

Another advantage to a line of credit is that a business only pays interest on the money it uses. This means that the interest paid on a line of credit can be limited.

A high line of credit is a flexible but sometimes costly method of finance that can be a really good deal for businesses that can get it.