Advantages of Revolving Business Lines of Credit
If your business has ever struggled with a cash flow situation, you understand the importance of having enough capital on hand to cover your expenses. In a perfect world, your clients would pay on time, you’d always have enough cash on hand to pay your bills and your vendors would be flexible. Of course, reality is far from that. A seasonal decline in customers or a period of growth can stress your financial situation. One option for your business is lines of credit.
What Is a Revolving Line of Credit?
A revolving line of credit is similar to a credit card. You can draw funds up to a certain limit for an influx of cash. You pay back what you’ve drawn plus interest. You can pay it back all at once or over time, making regular payments. When the balance is paid, you have credit available again.
Benefits of a Line of Credit
What’s the advantage to having a line of credit over another type of loan? With a term loan, you get the entire amount at closing. Lines of credit are only used when needed. You only pay interest on funds that you use. This can make getting a line of credit more cost effective. Also, business loans are not usually extended when the loan is paid off. Your line of credit may increase as you make payments, providing even more flexibility.
In addition, revolving lines of credit are generally cheaper than a business credit card. If you have good credit, you can get a more competitive interest rate. Borrowing money on a credit card is generally more expensive than simply paying for items on a credit card.
A business line of credit gives you more immediate access to funds when you need it. By establishing this type of financing when you don’t need it, you can make better decisions when you do need capital. You won’t waste time trying to get a loan processed when your cash flow isn’t up to what you need. Instead, you’ll have additional cash to expand your business or purchase inventory when you find a really good deal.
Applying for a Revolving Line of Credit
Although every lender has their own requirements, generally, you will need to know your business and personal credit scores. The higher the score, the more likely you will be approved. You should also have your financials in order to show that your cash flow over the year will let you pay back the funds. Know how much your business realistically needs and can pay back. The lender may want to know how you plan to use the funds.