A Comprehensive Guide to Small Business Equity Lines of Credit
In order to sustain a small business in its first few years of operation, it will be essential for the small business to maintain a steady flow of income. During their development, most small businesses will require outside funding, from investors or another source. When investor funding cannot be obtained, many small business owners choose to obtain a small business equity line of credit. This line of credit may be obtained through a bank or credit union, but before a small business owner chooses to employ this option, he or she should familiarize themselves with small business equity lines of credit. In its most basic definition, the small business equity line of credit may be defined as a secured loan, which will allow a business proprietor to access the equity within the commercial real estate. This form of a loan is most often employed to meet for short term cash flow, to manage accounts receivable, to purchase equipment, or to meet any number of monetary needs. The monetary amount of the loan that the bank is willing to give will depend upon the loan amount that the business requires and the value of its commercial property. The majority of most banks and credit unions offer equity based lines of credit for businesses of all sizes. As aforementioned, the monetary amount of the loan that the bank is willing to surrender will depend upon several different factors, but this amount generally ranges from $25,000.00 to upwards of $250,000.00. There are some credit unions that are willing to extend lines of credit that are worth up to approximately 70% of the commercial property value. The primary advantage to using this type of loan is that most small business equity lines of credit generally have no application fees, low origination fees, and low annual renewal fees. When a small business is looking to take out an equity based line of credit, the interest rates of the loan are one of the most important factors they must consider, and the interest rates of the line of credit will vary from bank to bank. Most equity lines of credit possess variable interest rates, which change in accordance to the Federal prime, but it is also possible to find lines of credit with fixed interest rates as well. Fixed rates of interest will be determined by the monetary amount of the loan, and they tend to feature low, interest only payments in the first few years of the loan’s duration. The duration of a small business equity based line of credit generally range from 10-15 years. The repayment period for equity based loans is longer than that of other types of loans; however, the advantage to this longer repayment period is that the monthly payment amount for the loan tends to be smaller. The lower repayment amounts are advantageous for young businesses who are still attempting to establish a client base. For more information, a small business should begin contacting banks and local credit unions within their immediate area.
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