A Signature Line of Credit Enables You to Borrow Based on Your Credit
If your business does not have adequate assets to secure a line of credit, a smaller credit limit may still be available with only a personal guarantee by the owner. Credit limits vary depending on the credit history of the guarantor (owner).
Businesses today rely on credit for almost everything. From ordering, to setting up services, to handling emergencies, the companies you work with will be verifying your business’ credit-worthiness. However, it takes time to establish your company in the eyes of creditors, and your business can only achieve a good rating one step at a time. In the early stages, when your company lacks the assets to obtain a secured credit line, a signature line of credit may be an option.
A Guarantor is Necessary for a Signature Line of Credit
As the name suggests, this type if financing is offered by signature, or simply because someone gives his word that he will make good on any debts accrued. It is typically the business owner who becomes the guarantor on the company’s financial agreements, though others involved in the business or family members sometimes step forward.
The Credit Line is Determined by the Guarantor’s Financial History
Because assets aren’t used as collateral in this form of lending, the credit-worthiness of the guarantor is one of the largest determining factors in how much capital will be made available. Funds are made available for the business to draw upon as needed, and as payments are made to repay the debt, the funds available replenish. This is typically called revolving credit.
There are Many Benefits to Obtaining a Signature Line of Credit
Beyond having funds available whenever you need them, there are numerous other benefits to opening this type of credit line.
Flexible Spending- Once you have approval for a credit line, how you spend the money is largely up to you. Companies typically use the funds in emergency situations, or to cover unexpected expenses.
No Interest Unless Money is Borrowed- Unlike loans, which are taken in one lump sum and accrue interest towards the total amount, interest is only tabulated on a credit line as money is borrowed.
Build Credit- Even though a guarantor is utilized, the business is still primarily responsible for payments, and taking care of them in a timely manner will help the company build stronger credit.
Tax Deductions- Some of the fees involved may be tax deductible, though it’s a good idea to confirm which ones you can claim with your tax advisor.
Unlike banks, credit unions exist to serve their members, and not for profit, which is why the credit union partners of Business Loan Connection offer so many options. If you have questions, please contact the specialist at the location nearest you, or apply right away using our no-obligation online form.