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Bank Line Of Credit - The Pros and Cons of a Bank Line of Credit - How to Get a Bank Line of Credit

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Applying for a bank line of credit for an individual or business is a big step. A line of credit has its benefits, but there are also built-in pitfalls that are better left avoided for some. To just about everyone, the thought of having a line of credit available to them has an appealing ring to it. It can help out in emergencies, but it could also prove extremely tempting. Many economists, financiers, and businesspeople argue that a line of credit is absolutely necessary both personally and in a business. They argue it is the only way to get the leverage required for further investments in the business, while providing support in periods of low sales. Recently, this notion has been challenged and people have found that they can be personally successful and run a successful business with no credit.

How to Get a Bank Line of Credit

The first thing to do when thinking about applying for a bank line of credit is to write down the reasons why you need it. What do you plan on doing with the line of credit? Is it to meet daily needs? Is it to stabilize finances? Is it only for an emergency?

Once you know why you need credit, the next step is to ask yourself why you need a bank line of credit. Most people and businesses function perfectly well with a credit card. Granted, credit cards are the more expensive alternative of the two, but they can have advantages over a bank line of credit.

If you decide a bank line of credit is right for you or your business, you will next have to find a lender. Most people go to a lender with whom they already have an established relationship. This often yields the best results, as long as that relationship has been a positive one. Some borrowers stray from their own neighborhood and go to a commercial lender because they offer better rates than their bank or investment institution.

Whichever lender you choose, you must be prepared with a history of financial documents when it is for a business. When it is a personal line of credit, you will need proof of income, assets, and expenses. In some cases, the bank will deny an unsecured line of credit, but will be happy to issue a line of credit if collateral is put up to secure the credit.

Pros of a Bank Line of Credit

There are several reasons why a bank line of credit is a smart step for your personal finances or for your business. Here are some of those reasons:

• A line of credit creates a lasting relationship between a lender and you, the borrower. This relationship is potentially beneficial to both parties. This relationship can open a gate to even greater financial funding solutions that may be needed in the future.
• A bank line of credit is flexible, as opposed to a standard bank loan. A line of credit does not necessarily require stating a reason to the lender. In addition, it is always available for you to take what is needed, when it is needed. A standard loan must have a stated purpose and it is given out all at once.
• A line of credit can remain open for a long period of time and can be used over and over again.
• The line of credit, if used properly, can increase credit ratings.

Cons of a Bank Line of Credit

A bank line of credit is not for everyone. Here are some reasons why it may not be your best choice:

• High fees – Many bank lines of credit have high fees for withdrawing funds or just for maintaining the account. Credit cards, while having higher interest, often have lower fees.
• It is more difficult to obtain a line of credit than a credit card. Business must have been open a minimum of two years and detailed financial reports must be provided to the lender.
• It is very tempting to max out a line of credit on frivolous purchases, only creating a line of debt that could easily have been avoided.

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