A business line of credit is a type of small-business loan that provides flexibility that a regular business loan doesn’t. With a business line of credit, you can borrow up to a certain limit — say, $100,000 — and pay interest only on the portion of money that you borrow.
Clearly, most businesses need a better understanding of where capital can be obtained quickly and inexpensively.
This is where a business line of credit can help.
Small Business Line of Credit Advantages
A credit line works like a credit card, offering you fast, easy access to cash. You can tap into the money on your credit line whenever you want and control how much you borrow.
You pay no interest on a business line of credit until you borrow. That means you can set up a business line of credit just in case you need it for an emergency.
Make on-time payments to a credit line, and your credit score will improve.
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Greater Control of Capital
Unlike a traditional loan, which just provides you with a lump sum of cash to be paid at a fixed or variable interest rate over a certain timeframe, the business line of credit allows you to tap into funds as you need them. This gives you control over how much money you take and when you take it. Additionally, you are only required to pay interest on what you use.
You are pretty much free to use money from a business line of credit as deemed fit. It provides you the flexibility to put your cash where it is most needed, when it is most needed. While traditional loans come with fixed monthly payments that may be challenging for young companies to meet, lines of credit boast much more flexible repayment options, making it simpler to navigate the inevitable ups and downs of business cycles. You can pay off a higher percentage of the balance when revenue is up, and just pay off the minimum required when revenue is down.
Although a business line of credit can provide cash flow when needed, you may need other funding at some point. Small business loans can provide lots of capital at manageable interest rates, and are thus an attractive funding source. For many businesses, the best way to get a good enough credit score for a favorable loan is by establishing a positive credit history with a business line of credit. This requires making payments on time and keeping a low balance.
A business line of credit carries many benefits and is a must-have for any business if you can utilize it carefully and strategically for short-term funding needs, like upgrading the office or financing a marketing campaign. If it gets tied in long-term investments, it can be dangerous.
Although a business line of credit can provide cash flow when needed, you may need other funding at some point. … For many businesses, the best way to get a good enough credit score for a favorable loan is by establishing a positive credit history with a business line of credit. If you want complete management control over your business, a line of credit is a solid funding alternative to traditional investment. Even if you envision investors will have to be part of the picture at some point, a business line of credit allows you to build your business at the start the way you want.
Some financial institutions don’t grant credit lines until your business is at least two years old and showing a profit. You also need a strong credit history.
If your company requires a significant amount of money for a purchase, like machinery, you may find a small business loan is a better option. Check small business loan rates and compare the two options.
Securing a business line of credit can help you grow your business. Terms and rates for business credit lines vary. Check out all of your options before deciding if a business credit line is right for your company.
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