An Overview of the Types of Credit Available to Small Businesses

Here at AMP Advance, we offer several options for small business owners looking to secure financing. One of the most useful options for companies looking for simple financing is the business line of credit.
BLOCs aren’t always well understood, especially among small owners who have only just begun operating.

A Quick Overview:

Apart from small business credit cards, this is probably the most popular financing option available to companies.
It is a borrowing limit that can be used at any time, with the borrower taking money out as needed until the limit is reached. As money is repaid, it can be borrowed again (in the case of an open line) almost like a constantly revolving loan.
BLOCs are great options when quick boosts to cash flow are required and can be thought of as being similar in operation to a company card.

Here are a few examples of how businesses typically use an AMP Advance Line of Credit:

– Inventory purchases
– Repairs to equipment
– Marketing campaigns and advertising
– Plugging seasonal cash flow gaps

What Types Are Available?

Secured:

As the name suggests, requires a collateral sum to secure the loan. Typically, that collateral is levied against a business asset you already own. In a sense then, this has similar requirements to an auto loan or a second mortgage.
Because of the greater security provided to the loan issuer, interest rates on secured lines of credit are usually lower, and the amounts issued are usually higher than on unsecured lines.

Unsecured:

This requires zero collateral. That means they’re more like bank cards, with approval being based more on business and personal credit ratings. That means higher interest rates and lower sums of money issued however are typically still cheaper than personal cards hence why this would be highly desirable for company purposes.
Unsecured lines of credit can still be useful for small businesses and startups that have few material assets to use as collateral.

Open-Ended, or Revolving:

Many lines of credit can be considered “open-ended”. So long as the approved spending limit is being repaid at the minimum amount each month, it can be used over and over again, just like a bank card.
According to the 2019 Federal Reserve Small Business Credit Survey, 85% of companies that were seeking business funding in the past year have applied for a loan or BLOC (as opposed to merchant cash advances or factoring).

With the key benefit, unlike traditional small business loans, lines of credit only require interest to be paid on the amount used (again, just like a bank card). This makes them the most popular and very flexible way of smoothing out cash-flow issues and taking care of unexpected expenses.