One of the biggest challenges that businesses face is managing their cash flow. Whether you're waiting on your customers to pay invoices, in need of purchasing equipment, experiencing a period of unexpected growth or demand, or expanding your business or inventory, there are often times when you need money you don't have on hand to catapult your company to the next level.
You've likely used loans or credit cards to get you through periods where cash flow has been tight or when you're making a big investment in your growth. Have you ever wondered if you were using the right credit products for your business needs? If you've not considered a real estate secured line of credit, you might benefit from learning more about how its flexibility and low interest rates could work for you.
What is a real estate secured line of credit?
A line of credit is a revolving credit vehicle like a credit card that comes with a maximum credit limit and can be borrowed and repaid up to that limit repeatedly. Lines of credit tend to come with low interest rates when compared to credit cards.
The difference between secured and unsecured lines of credit
A secured line of credit is when you offer an asset as collateral. This could be an owned asset or property like your home, commercial building or farm. There is a higher risk for the customer with secured lines of credit - if you're unable to pay back the amount borrowed the bank could seize your asset to get its money back. An unsecured line of credit has no collateral attached and does not pose the risk of tying the line of credit to a specific asset, it tends to come with a slightly higher interest rate for that reason.
How do I use my property as a collateral? What kind of asset is acceptable?
When applying for a line of credit, let your advisor know that you are a homeowner or a commercial property owner and are willing to offer a property you already own as collateral. When you sign the paperwork for the secured line of credit, you will also need to sign over documents authorizing the use of your property as collateral. In some instances you may still do this if you have a mortgage loan on the property, if you have built up equity in your property and meet other criteria. Please note, not all mortgage loans provide you the flexibility to use the equity built in your property. Discuss with your advisor your options to setup a global limit to use the equity for current and future business needs.
With the Scotia' Flex for business and agriculture program your real estate assets could allow you to qualify for a global credit limit, and provide you with multiple lending product options.
Turn the equity in your home or commercial property into an asset
The benefits of a secured line of credit for business owners is that you can use existing equity in any of your properties as an asset. This allows you to get a lower interest rate than you might if you borrowed via an installment loan, an unsecured line of credit, a personal loan, or a credit card. Those savings could have a significant impact on your business over time by keeping your borrowing expenses down and give you more cash to serve your customers and grow your business.
Benefits of using secured lines of credit
The benefits of using a secured line of credit is that having it in place allows you to borrow only what you need, when you need it, and at a lower rate than if your credit was unsecured. For example, if you plan to renovate your offices, you will have to provide your banker your proposal along with supporting documents for approval of loan. A line of credit allows you to take out the amount that you need when you need it, cutting down on time and documentation required to access credit and interest costs.
Secured credit lines may also have more flexibility around repaying what you borrowed. With an installment loan, you have to pay an amortized monthly payment over the term of your loan, and you could potentially face penalties for repaying your loan more quickly. However, with a secured line of credit, you only must pay a certain minimum account percentage every month – which at Scotiabank could be as low as interest only or minimum $50 per month. You choose how quickly or how slowly to repay the amount borrowed. Repayment flexibility works well for companies that experience significant fluctuations in monthly cash flow or are experiencing additional expenditures over a period of time.
With a secured line of credit, you could get a lower rate than an unsecured line of credit or a credit card – allowing you to potentially save on interest. You also can set up a secured line of credit before you need the money which will save you the stress of frantically applying for credit when you have a business emergency – which could impact your credit score.
How does it work at Scotiabank?
The Scotia Flex for business program allows businesses to be approved for a global credit limit to help plan in advance for their business borrowing needs. The program looks at your business' full financial picture and approves you for one global limit that can be used across Scotiabank's business credit products including lines of credit, term loans, credit cards, equipment leasing, import letters, export letters, and letters of guarantee. The choice of the mix of products and their individual limits are determined by you and your individual needs.
What is a global limit? How does it work?
A global limit means your application for multiple credits is streamlined. This minimizes application fees and paperwork and helps make your life easier. Instead of applying for several different individual business credit products, you apply once and then with the global limit established, you can decide which products suit your business best now and into the future. With a global limit, you will know how much your business is eligible to borrow in total, and you get to decide how much you want to borrow now and which products to use. For example, if your business is approved for a $400,000 global limit, you could take $200,000 out as a secured line of credit, $100,000 out as a term loan, and set $50,000 as a limit on a credit card. This would mean that there is still $50,000 in available credit available to use in the future to add to these or open other products.
The best part about a global limit is that there is no time spent on future credit requests and the uncertainty that comes with additional loan request approvals is gone. Once established, you will always know how much credit your business can access in a pinch.
Finally, this also helps you control borrowing costs more proactively and reduces the amount of time you'll spend providing reports to your bank.
Credit products available under the global credit limit
Wondering what kinds of products you can access with the global credit limit? They include:
Overdraft Protection for business
Using a secured line of credit as part of your global limit
Ultimately, a global limit for business borrowing at Scotiabank saves you time and allows you more flexibility to meet borrowing needs to proactively manage cash flow and choose borrowing strategies that save money on interest.
By using secured credit to fund your business, you turn the equity in your home, vacation property, farm or commercial property into an asset that can help grow your business and save money by reducing your borrowing costs.
