The Importance of Unsecured Lines of Credit for Businesses
The world market is based on a consumer credit society. A consumer’s good name can be built upon a good credit rating, and even a person with less than stellar credit has a chance of improving it over time, as it is a dynamic function that changes from period to period. Like many general consumers, businesses also need good credit. However, unlike the individual consumer, failure to obtain credit can be the difference between success and failure of a business and can have lasting long-term effects. The best sign that a business has viable potential is its ability to receive unsecured lines of credit.
Understanding what credit is and how it works is critical to knowing how it can be beneficial to businesses. Credit is defined as the ability to obtain goods or services prior to payment, based on the good faith belief that the payment for those goods or services will be made at a future date, either in one lump sum or in installments. For businesses, the extension of credit is especially important, as many businesses often do not have the liquid, or immediately available, capital.
There are two types of credit extensions: secured and unsecured. Secured credit means that there is often a tangible item put up as collateral for the amount. That tangible good can be property, either personal or real estate, or it could be having to put up a certain amount of money to establish a credit history. Unsecured lines of credit tend to have a lot more flexibility as they are set up without the need for collateral and are often based on an already established good rating history.
Lines of credit can be used for a variety of things in a business and can be used at any stage. For the new business, these lines may be a way of securing a space, equipment or merchandise needed. For the already operating business, they can help with expansion or upgrade. Very few restrictions are placed on unsecured lines of credit as long as they are used for business purposes and paid back in a timely manner. In many cases, the profits from the business are often used to pay back the credit extended.
Having access to lines of credit can help a business enjoy greater fruitfulness when applied for correctly. There are many options available, regardless of whether a company is a startup or an established firm, a small business venture or a corporate conglomerate.