Businesses of any size and any age can benefit enormously from opening business lines of credit, instead of only relying on traditional bank loans or alternative forms of lending.
What is a Business Line of Credit?
Business lines of credit work very similarly to your personal credit card. After you go through a simple application process, your business receives an approved amount of money in the form of credit to borrow from. You can spend whatever amount is necessary for purchases, and the money spent subtracts from your total credit available. As you pay back the sum, the amount of credit bounces back. As long as you pay back the amount in full by your credit line’s payment due date, usually monthly, you should see your business’s overall credit score increase, making you a viable customer for other business loans in the future if needed.
What are Some of the Benefits of Credit Lines?
Although there is a charged interest on credit lines, the interest is typically significantly lower than credit cards. You also can see an improvement in your cash-flow management by using lines of credit to make purchases throughout the fiscal year. Rather than rely on a large bank loan for small purchases, you can use your line of credit for things like inventory purchases, marketing materials, and operating expenses, among other business necessities. As long as you don’t use the entirety of your allotted credit in a single month, the limits of what purchases you can make are endless. The flexibility of being able to pay back exactly what you spend when you spend it gives businesses more control over their finances than making large loan payments on a strict schedule.
Are There Any Downsides to Lines of Credit?
The idea of using lines of credit to operate your business is always a good one, but there a few downsides to be aware of. Business lines of credit from lending institutions require proof that you earn enough money to pay the bill on time and with the proper funds. Lines of credit are not a good option for purchasing property or paying your employees’ salaries and health benefits. For the use in a financial emergency, a line of credit is best used for a short-term issue, and not a good fix for any long-term problems.
Business lines of credit are extremely useful to large and small companies. Apply for one that suits your needs.