|
What is a Secured Line of Credit?
While sometimes loans do not have any collateral behind them, almost all loans with regulated financial institutions do have collateral.
That collateral can consist of a business’ Working Capital – the inventory or the accounts receivable or other liquid assets. This collateral is used to ‘secure’ the Line of Credit that a financial institution makes to a business.
The lender will often establish a revolving loan and the entrepreneur will provide a group (or pool) of collateral that the lender can validate.
When the inventory is sold, or accounts receivable collected, the available credit decreases. When new assets are purchased, inventory is replaced or new accounts receivables are generated, the available credit increases.
What are the advantages of a Secured Line of Credit?
-
Financial institutions have safer loans
-
The Secured Line of Credit keeps pace with the liquid assets of the company
-
The ‘revolving’ nature of the loan nicely suits the idea of ‘cycles’ in the business – with increases and decreases following the sales and collection activities
-
The business owner can use the financing to buy materials to make a finished product or perhaps to invest in marketing or advertising initiatives
-
The increased sales that come from selling the new product, or from the increased marketing, will create new accounts receivables. This new profit can be used to pay down the loan with any remaining profit being used to grow the business.
Many entrepreneurs use their Accounts Receivable to secure their Line of Credit.
If you think a Secured Line of Credit can enhance your Cash Flow or if you feel there are other ways a Secured Line of Credit would benefit your business,
e-mail us at CashFlow@NowFinancing.com.
A more detailed explanation of a Secured Line of Credit is provided in the book,
The
Entrepreneur’s Guide to Prosperity -- Financing Your Small
Business, by Morris
Bocian. |
