Using Unsecured Line of Credit for Your Business

When your business is starting out, you are probably making use of funds available through a small business credit card. Of course, there are several advantages to this financing tool, foremost of which is the relative ease of obtaining it, the low interest rates, and most lenders offer flexible terms of payment. Though there are also disadvantages, such as the need for the owner to risk a part of his personal finance for guarantee and the possibility of abuse, there is still no denying its multiple benefits. And for a while, small business credit card would be sufficient to meet the financing needs of your company. Keep in mind, there will be a time for your small business will need financing more than a credit card can supply. That’s when you need an unsecured line of credit.

 

What advantages does the unsecured line of credit hold over small business credit card? Apart from the higher credit limit, unsecured business line of credit also has lower interest rates. As the name suggests, unsecured business line of credit doesn't need collateral to back the loan, reducing the personal liability of business owners. But the process of obtaining unsecured lines of credit is quite different from that of procuring small business credit cards.

 

One of the vital requirements in obtaining unsecured line of credit for your business would be the business credit scores, which contains data on previous credit transactions you have and on how well you adhere to payment schedules in the past. As a consequence, getting approved for your businesses unsecured line of credit heavily depends on your business credit scores are.

 

Obtaining and maintaining a good business credit is relatively easy to do as long as business owners and managers implement policies designed to limit unnecessary expenditures and keeping track of transactions efficiently. Avoid delayed payments at all costs and prevent debts from escalating to unmanageable level, as these scenarios are some of the biggest obstacles in obtaining unsecured business lines of credit. Also, you should make it a priority to establish a partnership with a reliable credit agency that will keep track of your credit history and rate it accurately.

 

Once you have obtained unsecured line of credit, use it wisely to grow and expand you business operations. Also, if you are persistent with implementing strong business policies, you'll have it easier getting similar unsecured business line of credit in the future.

 

For more information on unsecured business lines of credit, visit http://www.buildingmybusinesscredit.com, a web site that provides business credit information to small and home businesses.

Cash flow factoring

Both factoring and invoice discounting can be described as ways to get immediate cash by selling accounts receivable to a third party, usually a finance company. In fact, the two methods are more similar than they are different.

Invoice factoring, also referred to as asset securitization, is an outright sale of receivables to the finance company. The business gets cash and the finance company collects the debt, keeps the interest and gets a discount fee on top of that for its trouble. Invoice discounting can also be termed a sale of receivables, but in this case administration of the receivables and their collection does NOT change hands. The business that earned the income still holds that responsibility.

Here are some questions to consider in order to choose which method is best for your company:

1. Are you concerned with the cost of collections in your company? Are they getting out of hand? Is your collections area fully staffed with competent and reliable personnel? If you think your company would be better off reducing the amount of resources devoted to this function, factoring is the better choice for you, as a lot of it, but not all, can be offloaded. If you already have a well-working collections department you might rather choose invoice discounting. That way your staff and procedures regarding collections remain in place.

2. Knowing that the finance company will undoubtedly treat your customers with the utmost courtesy, respect and professionalism, are you nevertheless concerned that he may prefer to be dealing directly with your company? Perhaps billing requests often come together with customer service requests. Your customer is generally not aware of the sale of his receivable to you with invoice discounting. Not only is he aware of a factoring arrangement, but also he is subject to confirmation calls on individual invoices by the finance company on occasion. If this is something you know would disturb your customers you may need to choose invoice discounting.

3. What are your current informational needs with regard to collections efforts and your customers? Do you currently collect this data and rely on it to make future credit decisions for this customer? Can the finance company provide it in the format and frequency you desire? If not, invoice discounting may be the right choice, so all your current data collection techniques will not be disturbed.

4. What are your cash requirements? With either factoring or invoice discounting, you are paying for the immediate cash. Doing the collections yourself at a normal rate would return you more actual cash. But invoice discounting returns you more cash than does factoring. This is, obviously, because the finance company takes on more responsibility and more duties with factoring than with invoice discounting.

5. How large a portfolio of unsecured receivables does your company hold? How diverse is it? Are there any single customers who hold more than 20% of the total receivables balance? Generally, companies using invoice discounting tend to be larger and have a more diverse portfolio. This could be why they chose invoice discounting, however, rather than a characteristic. They already have the collections efforts and data collections methods in place and the cost and difficulty involved in changing them might be prohibitive for a factoring arrangement. Diversity in the portfolio is something finance companies look for under both arrangements.

Making an honest assessment based on these factors will allow you to make the right choice for your company. You’ll soon be on the way to a healthy cash flow, no matter which you choose.