A traditional line of credit from a bank is not always available. This can be caused by many factors such as less than perfect credit, insufficient credit history, or tightened credit policy on the part of banks. Alternative lines of credit do exist. These include supplier credit lines, home equity lines and personal credit cards. All of these options can alleviate the need for a traditional bank line of credit.
Supplier Lines
Not every business can qualify for a traditional line of credit from a bank. If you are trying to get a fledgling company off the ground, you have experienced a rough year or two, or your company's growth is outstripping your current line of credit, one option to consider is supplier credit. A supplier will quite often be willing to extend short term credit to companies with which they do business. This usually takes the form of repayment agreements that stretch from 30 to 90 days. Depending on your company's cash flow cycle, these terms could potentially allow you to receive the supplies or inventory, sell them, collect payment, and repay the supplier.
Home Equity Lines
If you own a house whose value is greater than the balance of the mortgage owed, you have the option of applying for a home equity line of credit. A home equity line of credit is just like a traditional line of credit but it relies upon the unencumbered value of your house as collateral. For example, if you have a home worth $250,000 with a mortgage balance of $50,000 then you could apply for a home equity line of up to $150,000. This represents a loan to value of 80 percent and reflects the more conservative lending standards that exist after the credit and housing bubble of 2007-08.
Credit Cards
As an absolute last resort, it is possible to use credit cards as an alternative to a traditional bank line of credit. The reason that this is a last resort is that credit cards typically carry a higher annualized interest rate along with higher fees and penalties. If you have incredibly short-term borrowing needs where you can pay off the credit card every month before payment is due, then it is an option. If you plan to carry a balance from month to month, then your cost of doing business will quickly increase. While the interest expense by itself should be enough to cause you to avoid using them, the second limitation of credit cards is the smaller amount of available credit they provide. Few personal credit card limits go over $25,000 so if you are looking to fund the working capital needs of anything besides a very small business, a credit card will probably not allow you to borrow enough money. However, even with their limitations, there have been many entrepreneurs who have launched successful businesses on the back of their personal credit cards before refinancing with a traditional bank line of credit once they became established.
