There are a variety of small business loans.

A line of credit is a flexible tool that provides access to money when your company needs it.

Security And Qualifying For A Line Of Credit

A line of credit can be provided either unsecured or secured with assets. The loan can be fixed or variable. If secured, it will most likely be with accounts receivables, inventory, property, equipment or fixtures.

To qualify you will need to have collateral, established sales/earnings ratios, and a reliable and predictable cash flow.

Pro's

The advantage for having a line of credit is you do not have to surrender equity in your company, and the interest cost is predictable.

A line of credits most powerful feature is its flexibility. You can borrow and repay funds as your need dictates.

Con's

If you do not have collateral, a line of credit may be hard to acquire. It can also impede your ability to borrow additional funds, as most lines of credit include restrictive covenants. The bank may want to limit your ability to borrow or enter into a lease contract and may require that you notify them of any significant changes in your financial position.

Alternative

If you need a more solid commitment, a revolving line of credit may be suitable. This type of instrument requires the bank to extend the credit as long as you are not in default on any of the terms and conditions specified in the agreement.

Who Should Use A Line Of Credit?

It can be a great tool if you enjoy good financial health and know another bank will lend you the money if your bank decides not to.

I have heard stories of business people obtaining lines of credit at several banks, in case the line of credit falls through with their current bank. Be cautious with this strategy. The bank always has the right to unilaterally change the terms or cancel the line of credit at anytime.

This may or may not be misleading (unless the covenant of your agreement restricts it), as most banks do not always agree on how good or bad a company's credit is.

Just remember, if your banker thinks your financial situation has changed significantly, and they check the credit bureaus and see many applications for credit elsewhere, they would be concerned, and it could also hurt your credit rating.