When Should You Use Business Lines of Credit?
There are some things that your business needs to function and some which are a good thing to have. When it comes to the latter, lines of credit are the top of the list. With a credit line available to your company, you can have an emergency fund for repairs and even a way to keep your employees paid during the off-season.
A revolving credit line is one where you borrow money now and pay it back, with interest, later. It’s an open-ended loan in that you will not have a number of set payments over a distinct time period. These lines can be secured through a bank, through a supplier or through a private lender and differ from credit cards because they are secured with the assets of your business instead of only your credit.
One of the biggest pros of business lines of credit is that the funds are there when you need them. This makes it easier to bounce back after emergencies or accidents and can even help you expand your company sooner. These finance options are ideal for companies with a gap between the work being done and the payment for that work as well as for industries with high and low periods. For instance, if you run a restaurant in a tourist town, then you are likely to see more business during one season and less during others. You can also use these lines to help build your business credit.
The biggest detraction of any type of credit is that you have to pay it back, with interest. For most businesses, this is not that big of a deal, but you should consider that you are adding another bill to your stack. These lines of credit can have higher interest rates than traditional loans as well as having commitment fees. This means that you are likely to still have a bill even if you do not have an outstanding balance on the credit line.
Lines of credit can help you cover bills and emergencies all year because they are revolving. They can help you build credit for your business, especially if you keep the account in good standing. Since this is a line of credit and not a loan, it can be easier to secure one and you are likely to pay more in interest. Once you go over all the research you can on the lines and creditors, you can choose the right one for your growing company.