Get Your Business Funded: Creative Methods for Getting the Money You Need

Equity Lines of Credit

There are all sorts of ways to structure a deal for capital for your business. More often than not, the money comes in as a lump sum, as in the case of a business loan. But lump sum payments are not the only game in town. Not infrequently, businesses need capital on an ongoing, consistent basis.

Example: A business may have a several-month lag between the time it buys inventory and sells those products. In that case, and in the meantime, the business may need money for operations, payroll, you name it, and yet with goods unsold, cash flow becomes an issue. In that case the answer often is to obtain a line of credit.

In some rare cases, when the owners and business have a great track record and outstanding credit, that line of credit may be unsecured. But as you can imagine, that is fairly rare. Unsecured lines of credit are risky, and as has been discussed previously, banks dislike risk.

As such, the more common practice is to secure the line of credit with some sort of equity. Generally speaking, there are two types of equity lines of credit: a business equity line of credit and a home equity line of credit. But in reality, these are distinctions without a difference. In practice, the two types of equity lines work in essentially the same way. The difference, of course, is what sort of collateral is used to secure the credit line—a business asset or the home of one of the owners. Almost always, using business assets as collateral beats using your house. ...