Commercial Equity Line of Credit, known for short as CELOC, can help small businesses – especially start ups. A commercial equity line of credit (CELOC) allows a business to borrow money on a regular basis so that they can finance their business. Usually, you can just write out a check when you need the money. It’s an operating loan where you can just borrow what you need as you need it.
I’m never one to tell people to take out reams of debt. In fact, I rarely use debt for my own small business. Sure, I have a line of credit and a credit card. But I use them sparingly. Still, if you’ve got the kind of business that has to wait on accounts receivable, bring in inventory, hire people at the start of a project and so on, you may be interested in reviewing CELOCs. I know that, for myself, I’ve been in situations where I was waiting on tens of thousands of accounts receivable from low risk clients, even though I get deposits – and I’m fortunate that I don’t need to buy inventory to keep going.
A CELOC requires your company to have a zero balance (nothing owing) for a set period every year. The money you’re allowed to borrow depends on your company’s collateral – not your personal assets. Of course, this makes it a lot harder to qualify for a commercial equity line of credit. Lenders would rather be able to sell your house if you stop paying your debts!
A commercial equity line of credit is pretty similar to a home equity line of credit, except that it’s your business providing the collateral, not your home and personal assets. It can help your business deal with cash flow issues when you’re waiting on accounts receivable. It can also help you ramp up to expand into new markets or buy more inventory.
To qualify for a commercial equity line of credit, you’ll need to have established good business credit. The business owners also need good personal credit and a history of income from their business. You’ll need to have been in business for a while too – at least a year, if not more. Of course, a lender will make the final decision. So do your due diligence and shop around.