What kind of collateral is necessary to get a line of credit?
It depends on the financial institution, but typically, a line of credit under $125,000 does not require collateral to secure the loan. It will require a personal guarantee from the business owner, however. Larger lines of credit do require collateral usually accounts receivables. Are there any rules or formulas to determine the right amount for a line of credit? There are no math ratios for lines of credit. The business owner is the best person to determine how much they need to tide them over during a cash flow issue. One question that both banks and business owners need to ask is this: Can the business comfortably make monthly payments for one year on a line a credit if it is fully drawn? What should a line of credit NOT be used for? Some businesses ask for a line of credit to purchase equipment or make capital improvements, but this is not what it should be used for. The business owner needs to apply for a term loan for these types of purchases, where the debt can be spread over a
