Business lines of credit are flexible financing products that can help solve any number of short-term money issues that might keep your company from operating at its best.
Sometimes referred to as revolving credit, this tool has considerable benefits. For example, interest is typically charged only on withdrawals. Repaid funds are available for use again, and you may use the money for virtually anything you need.
Revolving credit can be secured or unsecured, and its use is very similar to a business credit card with a few differences. You will have to apply through a business lender, so the eligibility standards will likely be more stringent, but the credit limits are typically higher with lower interest rates.
Traditional banks are generally a go-to for business loans; however, they can afford to be very picky with whom they lend or open credit. Alternative lenders (online and others) are usually happy to deal with less established businesses that may not have a robust financial history or high credit ratings.
So once you’ve opened your business line of credit, how can you best take advantage of it?
- Unforeseen Expenses – At some point, almost every business will experience an emergency. You may not have the capital available to repair your service van after a fender bender or to remove the tree that fell on your office roof. Opening a business line of credit for this purpose can be particularly valuable as unused funds don’t generate interest, so it can generally sit as long as necessary during peaceful stretches.
- Supplementing Cash Flow – Aging receivables, extended payment terms and seasonal downturns in sales can all hurt cash flow. Revolving credit may help in times of need when you need to stay current on expenses like mortgages and payroll.
- Short-Term Investments – While a revolving line of credit may not give you the best return for long-term investments, it could be useful for short-term solutions like hiring a consultant or replacing some old shelving in your warehouse.
- Purchasing Equipment or Inventory – Purchasing new equipment or inventory upfront is ideal if you can afford it. Most businesses may not be able to handle the expense outright, and more specific financing solutions like equipment loans turn your property into collateral. If you can manage higher interest rates with a fully stocked warehouse and state-of-the-art machinery, unsecured revolving lines of credit can help fund the purchase without putting your assets on the line.
Even if you already have traditional business loans, a revolving line of credit could be a great supplement that your company can use in a variety of ways. Protect your cash flow and gain security, knowing funds could be available whenever you need them.