There are various steps in a guide to obtaining commercial equity lines of credit (CELOC). CELOCs are reliable for short-term, intermediate-term and long-term borrowing. In fact, businesses can utilize CELOCs to improve liquidity, expand operations, improve property finances and enhance working capital. As a business owner of a private company, consider funding from commercial equity lines of credit. Read on to learn about obtaining commercial equity lines of credit.
How To Obtain A Commercial Equity Line Of Credit
Understand A Commercial Equity Line Of Credit
First, understand what a commercial equity line of credit is before obtaining one. A CELOC is similar to a loan in that your business receives financing. However, instead of receiving a substantial lump sum of finances, you are approved for a maximum total. As a result, you can take out funds up to the max quantity as you need them. Plus, you only pay back what you have borrowed and it’s acquired interest amount. This is a reliable option for business owners who need cash now and more later. For example, you won’t need to take out several loans to borrow money over time for important projects such as renovation. Of course, the first step in the guide to obtaining a commercial equity line of credit is understanding the financing option.
Review Your Qualifications
Secondly, review your qualifications to ensure you are able to obtain a CELOC. Collect important business-based documents detailing your operations timeline. For example, you need to generate documentation that proves your business has been operating for 6 months or more. More so, confirm that your annual revenue is at least $25,000 and that your credit score is 500 or more. Of course, organize your personal and business tax returns along with your business financial statements. Include your profit-loss statement and your balance sheet. As a result, lenders can understand your financial standings and determine if you are qualified to open a commercial equity line of credit.
Confirm Ownership Of Eligible Properties
Next, confirm ownership of an eligible property to obtain a CELOC. When qualifying for a CELOC, you are required to have a type of eligible property. Provide documentation that you own an office, retail business, ware house or light industrial building. Or, confirm ownership of a mixed-use property, multi-family unit or commercial condo. Additionally, CELOC lenders generally accept auto repair or car washes as a special purpose eligible property. Plus, you can typically qualify for a CELOC by owning a convenience store, medical facility, school, funeral home, gym or restaurant. Certainly, confirm ownership of an eligible property to obtain a commercial equity line of credit.
Calculate Costs And Fees
Of course, calculate costs and fees when obtaining a commercial equity line of credit. Like other commercial loans, CELOCs require payment of specific fees. Typically, you have to pay origination fees, appraisal fees and application fees. Origination fees consist of the sum charged to enter a loan agreement with a lender. Usually, these costs range from 0.5% to 1% of the loan amount. Meanwhile, appraisal fees include the costs of getting a professional estimate on your property. Also, take into consideration that application fees depend on the lending institution of your choice. However, certain lenders, such as major banks, waive fees including appraisal and application costs. Definitely calculate costs and fees to obtain a commercial equity line of credit.
Learn About Secured & Unsecured Lines
Finally, learn about the difference between secured and unsecured CELOCs. A secure business line requires a form of collateral such as important assets or property. Similar to asset based loans, if you fall through on paying back the credit line, your assets could be seized. Meanwhile, an unsecure business line eliminates the need for collateral. However, some lenders may demand a personal guaranty or lien for certain business-related assets. For example, a personal guarantee allows a lender to go after personal assets, such as your house, if you fail to pay. On the other hand, a lien allows lenders to seize your business assets if you don’t repay the loan amount. Surely, learn about secured and unsecured lines of credit to determine which option is best for your business.
There are several steps to obtaining commercial equity lines of credit. First, understand what a CELOC is and how it can help your business. Second, review your qualifications and ensure you are eligible for the line of business credit. Next, confirm you own an eligible property to qualify for a commercial equity line of credit. Of course, calculate costs to determine the what you need to pay to obtain a CELOC. Finally, learn about secured and unsecured CELOCs to discover which lending option works best for your business operations. Follow this guide to learn about obtaining a commercial equity line of credit.
There are several types of commercial equity lines of credit (CELOC). A commercial equity line of credit offers new or existing businesses working capital. Sometimes, the line of credit is backed by equity or collateral. In exchange, companies can obtain cash for various expenses, such as renovations, repairs or purchases. Typically, these expenditures can be paid off easily or in the short term. As a business owner, you can access your money through cash, checks or other business finance sources using a line of credit. Here are the different types of commercial equity lines of credit.
Types Of Equity Line Of Credit
Small Business Equity Line Of Credit
First, you can open a Small Business Association equity line of credit. SBA CELOCs can be a reliable financing tool for your company. They provide quick cash options, lower interest rate solutions and flexible financing features. You can access cash whenever you need it. In fact, you can have and keep your CELOC in your back pocket until there is a reason to use it. As a result, you can avoid going to a bank to take out an expensive loan when there is a business need or emergency. Additionally, CELOCs usually offer reduced interest rates compared to other revolving credit lines. More so, a SBA CELOC can cover almost any business-related expense. For example, needing an office repair or new equipment. Certainly, a small business equity line of credit is a top type of CELOC.
Traditional Secured Business Line Of Credit
Secondly, a top CELOC is a traditional secured business line of credit. Traditional secured business CELOCs rely on collateral. For example, you would put up a valuable possession, whether it be a business asset, major equipment or a piece of real estate. As a result, if you fall behind on payments, the commercial lender can claim your collateral as repayment. More so, since the risk is lower, you may receive better overall terms. These include potentially reduced interest rates and flexible repayment terms. In fact, you may even qualify for an increased line of credit. Surely, traditional secured business lines of credit may be a reliable investment for your business.
Business Credit Cards
Moreover, business credit cards are also a line of credit. These corporate credit cards are most suitable for newer businesses with limited ongoing finances and without established finances. Use business credit cards, such as the best Visa cards, for all business expenses, renovations or updates. Like other lines of credit, you take out money and pack back what you’ve used. Moreover, credit cards usually offer rewards and cash back. Rewards are usually for business related expenses including gas, cable/internet options and office supplies. Additionally, you may receive 0% interest promotions where you don’t have to pay interest on your balance for a predetermined time period. Of course, if you need to fulfill small expenses, consider a business credit card as your line of credit.
Unsecured Commercial Line Of Credit
Another CELOC type is a unsecured commercial line of credit. This line of credit is not backed by any collateral. Therefore, it is more risky for the lender. As a result, the credit is typically offered with increased interest rates and a reduced borrowing limit. Additionally, it may take a lot more time and energy to obtain an unsecured commercial line of credit. The lending institution implements a more thorough evaluation process. In fact, your company will have to submit a sound financial profile. Of course, you can only receive an unsecured CELOC if the institution agrees and approves that you are a reliable recipient. Certainly, you can consider using an unsecured commercial line of credit to support your business.
Real Estate Equity Line Of Credit
Of course, you can also access real estate equity lines of credit. You can access these funds multiple times over a span of anywhere between 12 and 180 months. Additionally, you can make payments on your short-term financing solutions until you pay off your balance instead of having to make monthly payments. Real estate CELOCs can be used for trade discounts, investment or inventory finances or to expand your real estate operations. More so, you can take out capital for property improvements and construction on owner-occupied commercial buildings. In fact, CELOCs help improve liquidity, increase working capital and meet short-term cash requirements. Definitely consider real estate lines of credit if you are in need of short-term commercial property financing options.
There are various commercial equity lines of credit options. Consider a small business CELOC for business-related emergencies, renovations or purchases. Secondly, you can open a traditional secured business line of credit by putting up a valuable piece such as real estate property or company assets. Additionally, you can receive an unsecured commercial line of credit with sound financial statements and thorough evaluation procedures. Of course, you can access a real estate equity line of credit for assistance with short-term commercial property funding options. Finally, consider a business credit card if you are a new or starting business and need smaller payment solutions. These are the different types of commercial equity lines of credit.