All businesses need cash flow to operate. It is a fact of financial life for all. But the question for most businesses is whether or not their total input cash flow should all be generated through sales. Small C-level businesses are often not big enough to justify going corporate to the extent of offering shares of stock, which leaves those companies with the primary option of obtaining a line of credit from a regular source they can depend on and trust. And it always comes down to a choice between secured and unsecured credit. There are advantages and disadvantages to both. This is a serious business decision, and having a truly professional small business lending company assisting in that decision is always essential.
Secured Credit Lines
Secured credit lines are exactly what the name indicates. Any money received from the lending company is secured by some type of clear asset. According to the experts at Lantern Credit, “A secured line of credit uses an asset you already have, like company real estate, as collateral to secure the loan. In the event you default on payments, the lender has the right to seize that piece of collateral to offset their losses.” This can range from a home to an office building, and it can even include other types of tangible assets that certain lending agencies will accept as collateral. This is the primary disadvantage of secured credit lines, but it also means that credit can often be obtained much quicker and easier. This step should never be done lightheartedly. It is always important to evaluate what could happen if the business forecast does not meet the business goal.
Unsecured Credit Lines
The biggest problem with unsecured credit lines is that they are typically difficult to obtain. Lenders will often scrutinize credit scores and prior payment records and references before issuing an unsecured line. The primary advantage is that there is much less risk involved because no assets are placed in collateral. However, lenders can and will file legal actions when unsecured debt is not repaid.
Evaluating Company Viability
What the decision to borrow basically comes down to for C-level business managers is accurate evaluation of business sales growth viability and long-term sustainability. The market in which the business operates can be crucial to this potential, and it is always best to have a lending agency that can offer solid input regarding potential sales growth and availability of operating capital based on those expected short-term returns. Difference businesses face different challenges, and many see bright futures that are still off in the distance. Efficient frugal cash flow decisions are typically necessary to get the business into a high-growth position in any particular marketing niche.
It is important for all business operators and owners to be prudent when these decisions are evaluated. Always make sure your line of credit comes from an established reputable company that deals with providing cash flow for a wide variety of businesses before making this final decision. The very life of your business depends on it.
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