A business line of credit can help you manage cash flow as you grow. Consider these tips to decide if it’s the right choice for your small business.
Owning and running a business can be like tending a garden. During some seasons, rain falls continuously and the garden blooms. Other times, you may find yourself in a dry spell and need a consistent, dedicated source of water to take care of your plants. A business line of credit works in a similar way, replenishing your business at times and keeping cash flowing during periods of exhaustion.
A business line of credit can be part of your organization’s cash flow strategy and growth plan, regardless of financial circumstances. However, when your organization needs capital to rebuild or grow, a line of business credit can become an invaluable asset.
It is important to understand how a business line of credit compares to other financing options and how its unique features can benefit any organization.
What is a small business line of credit?
Like a small business loan, an unsecured line of credit provides businesses with access to funds that can be used to meet any business expenses incurred. However, unlike a small business loan, there is no one-time disbursement upon account opening that requires subsequent monthly payments.
The small business line of credit is subject to annual credit review and renewal, and is revolving, just like a credit card: Interest begins to accrue once the funds are withdrawn and the amount you pay (not including credit cards). including interest) will be able to borrow again when you pay out of balance. For credit cards, lenders will place a limit on how much you can borrow.
Small business line of credit
Understanding secured and unsecured lines of credit
Small business lines of credit are often offered as unsecured debt, which means you don’t need to apply for collateral (assets that lenders can sell if you default). . Many unsecured lines of credit have variable interest rates and are available in amounts from $10,000 to $100,000.
For amounts greater than $100,000, you may be required to secure your line of credit with a joint mortgage on your property or a certificate of deposit.
- Use a business line of credit to manage cash flow
A business line of credit is essentially another type of small business loan. These are usually term or revolving loans. Unlike traditional business loans, a business line of credit can be used for general purchases without being assigned. As such, a business line of credit gives your organization greater control over its cash flow.
Even if your organization doesn’t have cash, a business line of credit ensures you can buy what you need when you need it. Having instant access to money gives your organization a new way to manage its cash flow. In the short term, this means it can be stocked on your shelves, but it also offers the ability to withstand unexpected economic downturns.
A business line of credit can allow you to maintain and expand your inventory and set your organization up for future success:
- Gather short-term working capital to prepare for sales impulses.
- Buy out-of-season produce at lower prices from wholesalers before you need them, then sell those products at a profit when they’re in season.
- Pay off your line of credit when you’ve made a profit on sold inventory.
Flood or drought, a business line of credit means you have a consistent source of funds to keep the garden growing, so to speak.
- Take advantage of Business Flow’s credit features to track spending
Along with supporting new opportunities for your organization’s cash flow strategy and growth planning, a business line of credit allows your organization to establish purchasing controls and monitor spending. With enhanced transparency and simplified purchasing, a business line of credit frees up employee time so your organization can direct its efforts toward value-added activities.
Paying with Invoices provides access to a variety of tools that allow your organization to maintain control of cash flow and track purchases. You can divide total credit lines into sub-lines for individual groups or departments within your organization.
In addition, you can easily customize which members of your organization have credit line access. These features help employees comply with company requirements and reduce administrative oversight and increase transparency.
- Start using a business line of credit before you really need it
Another analogy in the field of gardening: “Make hay while the sun is shining.” In other words, get a line of business credit to manage your cash flow in times of deep pocket so you know how to use it in times of drought.
Unlike a business credit card, the purpose of a business line of credit is not to make smaller specific purchases. Instead, it gives your organization an additional option to manage cash flow. Having a business line of credit available if the need arises allows you to effectively and purposefully incorporate this tool into your organization’s cash flow strategy and growth plan.
Remember that it can take time to research your loan options and then apply. Different lenders may have different criteria for your business to qualify for and secure a line of credit.
Whether your garden is growing well or you need help, a business line of credit will provide the cash flow to keep your business afloat.