Some of the time, your business requires quick access to funds. You may need to cover seasonal sales declines, payroll expenses or inventory purchases. Business lines of credit are great ways to obtain cash. When you apply for a credit line, your lender reviews your business history and credit score. They agree to provide you with a set amount of funds, but you do not receive the money immediately, as with a term loan. You access the cash only when you need it. Here are the advantages of obtaining a business line of credit.
Buy the Necessities
Lenders authorize a maximum amount that you can borrow on your credit line. If you need a cash infusion, only request the amount you think you need to cover the expenses. Asking for too much money means you pay interest on the money you didn’t use. This keeps you from falling into a mindset that encourages you to spend all of the available cash. By asking for a specific amount, that is the funds you receive. You do not have the flexibility to buy more.
Pay Back What You Borrow
Business lines of credit only charge interest when you request the money from the bank. Many business owners choose to use their credit line as a safety cushion. They keep their credit line available for years and never use it. Others use their available credit as part of their overall financial strategy.
Manage Cash Flow
Seasonal sales declines can affect your available cash flow. While sales may slow, you are still responsible for loan payments, payroll expenses, rent and utilities. Accessing your credit line allows you to continue making those payments.
Establish a Relationship
Lenders like to work with established customers rather than seeking out new ones. Building this relationship helps show the bank that you are a trusted borrower. In addition, strategically managing your lines of credit allow you to improve your credit history. You get access to better loan rates or other financing options for your business.
Grab an Opportunity
Every business owner has been offered deals they wish they could have made. Don’t be that entrepreneur that passes up a growth opportunity because of limited cash. A competitor retires and sells their business. Vendors offer bulk discounts on inventory or raw materials. Growth demands a new business location. Using your line of credit can allow you to seize these opportunities.
As with any financial product, examine the costs and benefits before agreeing to the terms. Many entrepreneurs feel more comfortable knowing the funds are available if they need them.