Running a business is hard enough without worrying about putting expenses on credit cards or applying for loans when you need cash. If you have good enough credit, and a decent track record of financial responsibility, a business line of credit can be a great way to get cash for your business when you need it. We’ll look at five very appealing aspects of lines of credit.
They can provide emergency funds
One of the best things about a business line of credit is that it works as if you have a loan on tap. You can withdraw from it (up to the amount your lender has approved) as needed. If a major unexpected expense like an equipment malfunction or seasonal drop in sales hits your bottom line hard, a line of credit can pump cash into your company to get you back in the black for the short term.
Once you’ve repaid, you can borrow again
This is where lines of credit really differ from traditional loans. You can pay off your balance as you go and borrow again (up to the approved amount) as needed. As long as you stay in good standing, this can be a huge asset and help with planning.
They can finance “in-between” purchases
You’ll likely run into a situation where you need to purchase something that is too expensive to put on a credit card because the price is too steep or the interest will hurt you in the long run. That doesn’t mean it will be quite expensive enough to deal with the time and structure of a traditional loan, however. Lines of credit are perfect for these in-between expenses.
They generally give you better interest rates
Although the rates for traditional loans are generally lower than business lines of credit, they are usually much better than the interest rates of credit cards. Once again, you’ll find that they’re a perfect in-between solution in this case.
They will help you manage cash flow
The nature of a business line of credit will force you to think about your company’s big-picture financial strategy. You’ll find yourself really tracking seasonal or industry-specific highs and lows, and figure out when it’s time to borrow and time to repay. The flexibility of a business line of credit is invaluable in helping you think this way, and it will positively affect your entire business plan.