Equity Line

February 28, 2010

An equity line of credit is a valuable tool many businesses can use in order to have a way to make needed purchases on a continuing basis.

Equity is the value of an asset after all the debts have been deducted on it. For most businesses the source of this equity is the commercial real estate the company is operating out of. If you own a piece of commercial real estate that has a market value of $600,000, but you still owe $200,000 on the mortgage principal, then the equity you have available on that piece of property could be as high as $400,000. If you were take out an equity line of credit based on that piece of property you could get a credit limit up to $400,000. The equity line is secured with the property as collateral, so if for some reason you don’t pay off the debt then the real estate could be confiscated to make up the payment.

The actual credit limit that you can get based on your property will vary greatly on different factors. Some of these include you credit rating, your business’s income level, other debts, and the various payments you’re making for other reasons. You can secure a larger credit limit, lower interest rates, and a better equity line all around by taking a few preparatory steps ahead of time. Research to find out what companies in your area would give you the best deal, and also consider that there are sometimes companies that will extend credit to companies based in certain industries. Looking at these things could help you spend far less money in the long run and help you secure a larger equity line.

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