Personal Lines of Credit & How They Work?

A personal line of credit or unsecured business funding is an unsecured loan that is funded by a bank or credit facility, and that closely resembles a credit card in the sense that you have a specific loan amount of money (comparable to a credit card limit) that you can use for any purpose, as needed. As you draw on the available amount, interest accrues only on the portion of the line that you have drawn, and you are responsible for repaying only the portion of the line that you use.

The personal line of credit is unsecured, and approvals and funding amounts are based on your credit score and depth of credit history. Personal lines of credit can be used for business start up money, business reserves, available cash for real estate investors, for homeowners remodeling projects, for a great vacation, medical bills, buying new furniture or helping a child pay for college, or anything you like.

To maximize amounts, specifically if you are looking to have available funds to start a business, or invest in real estate, it is necessary to obtain funding from various sources. It may include a mix of cash cards and lines of credit. It is possible to obtain up to $300,000 in various options which you can liquidate into cash. Many of these cash cards and lines come with 0% interest for up to 24 months, and many have low interest rates, I have seen many at 5-6% range depending on the strength of your file.

Responsibility will allow you to enjoy and even build on the available cash you have access to. Like other forms of credit it can get you in trouble. Always review every transaction, and make sure you feel comfortable with making the payment. The purpose of money is to make money, so invest wisely. 

Uses for Lines of Credit

There are many uses for personal lines of credit. A line of credit is a great rainy day fund. Prior to the economic meltdown in 2008, many small business owners used lines of credit that they obtained on their homes. It seemed to make sense back then, especially the way real estate was skyrocketing, and getting financed was as simple as fogging a mirror. But the backlash was devastating. When the crash happened, the banks froze all those lines of credit and at the same time froze all business lending. These small businesses were devastated. They had no access to cash, business slowed and many ended up closing their doors. Because the real estate market crashed, not only weren’t they able to make their payments but they had huge negative equity in their home and many ended up losing their homes. This could never happen with unsecured financing. Really the worst result would be destroying your credit and some harassing phone calls, but there are ways to stop the calls and resurrect your credit with some time and effort. Luckily, the unsecured lines would not be frozen and you would still have access to the cash you need to keep going.

Whatever reason you’re looking for a line of credit, having funds set aside can be a life saver. Your Daughters wedding, a new roof on your house, tax bill or any type of personal emergency is a great way to maintain a safety net. In business this is the same idea, a piece of equipment breaks down, maintain cash for the ebb and flow of business, purchase of extra inventory at a bulk discount, or any business need.  As a business a rule of thumb is to have at least 3 -4 months reserves, although this is the rule of thumb, many small businesses have a very hard time regulating cash flow. This is where having a line of credit would be beneficial. Remember if you have bad credit or another situation where you feel you would be unable to obtain financing, everything can be overcome, it just takes getting started. The longer you wait the longer it takes to achieve your goal. Imagine if you had access to cash, when you need it. It would change your life.

Another great use of having a line of credit is for people with irregular income. Real Estate Agents and other commissioned sales people who do not live on a weekly paycheck can use a line of credit to fill in the voids. It helps running your personal life easier and allows you to stay ahead of your bills and other expenses that may pop up.

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What’s Involved in Getting Line of Credit

Getting the unsecured cash you need can be an involved process and it is recommended that you use a professional who is experienced with the available credit facilities and their guidelines. If you have below a 680 credit score or have limited credit, it’s important to start the process to build your credit file before starting your expedition into obtaining the lines you require. 

It’s important to prepare, and the longer you wait the longer it will take. Remember there is no magic pill that will cure or enhance your situation without doing anything. No matter what your credit score is it can be fixed, but it takes time and effort. There are many good reasons for maintaining good credit, like lower insurance bills, being able to save on rental costs and interest rates. If you have a real goal or dream, then you must commit yourself to doing what has to be done no matter how long it takes. Time goes by fast. I cannot tell you how many calls I get for people who are looking for money to start a business, who have bad credit. Many who watch TV shows and think that they can get venture capital, and it is hard to explain to them that it is harder to get venture capital then getting drafted by a major league baseball team. Many of these same people call me or one of my affiliates every few months looking for the same thing. The ugly truth is that if they put their effort into cleaning up their credit and building the depth of their credit file they would have had the financing they need today.  It’s a vicious cycle that many go through, because they look at the time and the effort involved, and think that it will be easier to find another easier route. It’s the path of least resistance.  Today, with the evolved credit laws and loopholes, a professional credit restoration company can do wonders. Along with the right development to rebuild and establish new credit you can be on the right track to getting the finance you need.  While rebuilding and establishing you will have to obtain higher risk cards, and with higher risk comes higher rates. Proper use of these cards and following the instructions of a credit professional will save you money and build your credit history. It’s a minimal investment that will provide you a huge return.

Now that we have discussed the essence of time, and realize that there is no better time to get started than now, we are ready to see how we can obtain the cash we really need. To maximize the amount of cash you can obtain it is important to set your credit goals as high as possible. Although in order to start the process for personal lines of credit, you will need a minimum credit score of 680. The higher the score the better the results, so if your score is 680 it is not that difficult to get it up another 100 points or at least it is worth the effort. It means maybe a small delay of 30-60 days, but it could mean the difference between 80k or 150k. The higher credit score can also mean better rates and better introductory offers.

Obtaining the maximum amount of funding will require a blend of components, lines of credit and cash credit cards. The higher the credit score and the depth of your credit history will allow for higher approvals on credit lines cash cards. To compliment the credit requirements employment and income information can be used to increase credit approvals. Providing employment information will submissions to more restrictive credit facilities increasing the amount of funding that is possible. These lines are still unsecured, they are simply reducing risk by requiring employment information to show the ability to pay back. Obtaining maximum funding requires submitting to multiple banks and credit facilities within the same time period. This style of funding may require additional rounds. Because it will result in numerous credit inquiries, a 30 day break may be required to get those inquiries removed before resuming submissions. Multiple inquiries throws up a red flag to lenders.

The amount of submissions will be dependent on the strength of your file. If you have really deep credit with high credit limits and low usage and show experience in handling your credit efficiently, you will be provided higher line amounts, reducing the amount of lenders that must be dealt with. The less depth, it will take more submissions to numerous facilities in order to obtain the higher total funding amounts. The good news is that once funded and you show through time that you can handle these credit lines they can be raised increasing the amount available to you.

A short story of time and dedication. I have a realtor friend who prior to the economic collapse in 2008 was making money like it was water. The big house, the summer house, the cars, the limo’s, he basically was living the life. Well when the collapse occurred he got trampled. He ended up going bankrupt and started all over again. He wanted to rebuild his credit and started with a secured card for $500, then was able to get an unsecured card with a $250 limit at over 20% interest and he kept going. Within 2 years he had over 100k available cash in credit lines, and each year it went up close to 100k. This just shows you that with fortitude and patience you can reach your goals and even surpass them.

Using a professional will save you the heartache of submitting wrong and ruining that relationship with the lender. A professional is knowledgeable of all lenders and the submission process. To get started simply takes a 1 page application, a service agreement, a copy of your credit report, photo ID, employment information and a utility bill. With this information they can tell you what you can expect as far as funding and can instruct you whether they can meet your expectations or that you will need more work. At ebizmore.com we have vetted all the companies that we deal with so you can be assured that you are dealing with true professionals.

Buyer Beware

Though there are many attractive sides to personal lines of credit (LOC), as with every loan, there are some trouble spots to consider.

Lines of credit are unsecured loans, and that means the bank is taking a huge risk. The bank has to be certain the borrower has a credit history that indicates he will pay back the loan. Therefore, expect everything in the customer’s credit report to be scrutinized closely.

If you have a poor credit score or history, it will be very difficult for a lending institution to extend you a LOC.

Another problem is that the interest rates are variable, making them subject to the whims of the marketplace. They can change from year-to-year, depending on the terms of the loan agreement.

The biggest concern is proper use of the cash. It takes money to make money! That’s an old saying but don’t misunderstand the meaning, When you invest money your return should be higher than the cost of the money you used. For instance, if you were able to buy a product for inventory at bulk and the money you laid out was going to cost you 20%, and the product you bought was going to give you a return of 50%, that’s making money on your money. Walmart, the largest retailer on the planet, buys everything on credit, and by the time they have to pay for it , they have sold most of the product and made their profit on it. This is just smart business. 

If you are using the money for personal reasons, don’t get carried away. These funds are not your personal money tree. Everything you use will have to be paid for, and in order to maintain your credit, it must be paid for in a timely manner.  Use what you need, use what you can afford, use it sensibly. 

Having this type of funding available and having the credit needed to obtain this type of funding will give you a level of confidence that will make you more successful in whatever you do. It will also reduce stress knowing that you have a rainy day fund, and who knows may even mean you will live healthier. Work towards what you want to accomplish, there are no easier routes, 

If you are an established business, ask us about business credit. This will also provide you access to the unsecured cash you need, all based on the business viability and not your personal credit.

 

Author: Michael McGahy

Eizmore.com

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