What You Should Know About Secured Line of Credit

A secured line of credit uses your homes or business assets as collateral, so both individuals and businesses stand to benefit from it. They are the ideal option for businesses to leverage there assets for cash inflow. Homeowners can also take out secured credit lines to pay for their kids’ college education or ongoing medical costs. They allow businesses/individuals to access cash when it is needed most and repayments are made only on the credit that has been used. Such lines of credit are generally more popular among businesses, especially smaller businesses and start-ups.

Benefits of secured lines of credit to businesses

With a secured line of credit, a business can buy important equipment, fund new projects and ensure stable operations. Such a source of funds is also beneficial when urgent finances are needed or even for those that may arise at a later date. A secured credit line is also helpful to maintain stability during fluctuations in cash flow as it serves as working capital until the receivables and dues are collected.

As opposed to unsecured lines of credit, secured lines allow businesses to access larger amounts of money at lower interest rates. In fact, the credit limits can be as much as ten times higher than that on unsecured credit lines as the business is putting down collateral to get such loans. The collateral can include the operating assets of the business, i.e. the inventory or accounts receivable. Unsecured credit lines are more conservative when it comes to credit limits. Besides, smaller businesses do not have the necessary history/track record to be able to obtain unsecured lines of credit. Lenders are usually not comfortable when it comes to approving unsecured credit lines to small businesses.

Another advantage of a secured line of credit is the flexibility it offers. Businesses can draw from the credit line whenever they want to, without having to reapply for funds every time. It is a continuous source of funds within a certain limit, similar to a credit card, but without the monthly bills that typically come with credit cards.

What you should remember when going for secured lines of credit

If you are a business owner looking for a secured line of credit to fund an upcoming project, then certain things must be kept in mind. The interest rates on such credit lines tend to vary from lender to lender, so a comparison of rates from various lenders is necessary to make an informed decision. The pre-payment fees and terms should also be compared to make sure you are getting competitive deals. You should also know that some lenders ask for the secured credit lines to be repaid in full just after one year, and this can give you less freedom to take full advantage of the cash. Another important consideration is the credit limit. There is no doubt that the limits are typically high. But the maximum amount that you can borrow is typically between fifty and eighty percent of the total worth of your assets.

For more information on second mortgage or home equity line of credit in Canada, contact Canadian Mortgages Inc.