Commercial lines of credit are very popular with the small business financing of today—and are the most misunderstood. Here, then, are some of the basic facts that can help you decide if this type of Arizona Commercial Loan is right for your small business.

A line of credit allows a company to draw on a predetermined amount of money.  To access the funds, the company just needs to draw on the line. Every time you draw on the line, you are reducing the amount of funds you can draw from.  The inverse is that you can pay down the line of credit at any time, thus increasing the available funds to draw from. A conventional credit card works much like a revolving line of credit.

When getting the Arizona line of credit, the bank restricts the use of the funds.  Since it is a Arizona commercial loan, the funds can only be used for business purposes.  Your company can use these funds to cover short term needs such as paying suppliers, covering payroll, and other corporate expenses.

Just like all types of lines of credit, there is an associated cost. The costs vary depending on the size and risk of the line, and the fees are based on the outstanding balance. There are additional fees such as availability and maintenance fees. These fees vary by bank. Most banks require that the full balance of the line of credit be paid down in full once a year.

Lines of Credit: Secured and Unsecured

1. Secured Lines

Both corporate and personal collateral can be used for this type of line of credit.  These assets will be used to secure the repayment of the line of credit. If the business owner defaults, the bank will foreclose on the assets to pay off the loan. Various types of assets can be used such as account receivables, inventory, cash, machinery, securities, certificates of deposits and real estate.  The pleaded assets will be secured by the bank filing a UCC.

2. Unsecured Lines

This type of line of credit does not required collateral such as outlined above.  The unsecured line of credit will be personally guaranteed by the business and often includes a personal guarantee by the business owner.  In the case of a default, the bank will sue the business owner personally as well as the company.

When applying for a Arizona commercial loan, the bank will examine the company’s income statement (P & L and Balance Sheets).  These reports will help the bank determine if you can repay the loan.