What are your plans for expanding your business? As an entrepreneur, you might find you need a little “breathing room” as you look for new ways to fund your growing business. A line of credit can give you the necessary working capital to take advantage of unique business opportunities which will help increase sales, purchase new inventory or take advantage of discounts provided by vendors. A line of credit also helps cover unexpected cash shortages for day-to-day business expenses.
What is a Line of Credit?
A line of credit is a very common form of financing vehicle offered by most business banks. This form of working capital loan is also called an operating loan. A business line of credit typically revolves similar to a credit card, has no fixed payment terms and is based on an adjustable market rate, generally, prime rate. The balance of the loan will fluctuate as you borrow and make payments.
Why is a Line of Credit good for my business?
A common reason to have access to a line of credit is to smooth out timing differences between the receipt of customer payments from sales and the need for funds to pay for salaries, accounts payable and other operating expenses. One of the primary benefits of a line of credit is that, generally, interest-only payments are required, which keeps payments manageable. A line of credit is a convenient form of financing which allows businesses to take advantage of business opportunities and can cover unexpected cash shortages.
What are the benefits of taking out a Line of Credit?
You can access credit anytime, up to a certain amount agreed upon by you and the lender. As cash flow allows, business owners have the flexibility to make principal payments to repay past borrowings. This can save your business money in interest payments. If you are able to pay the balance off in full, you won’t have to pay any interest. Another benefit is that you can also extend payments over time so you can spend the extra money on more immediate needs.
How do I get a Line of Credit?
The line amount of the line of credit depends on your business revenues and projected annual cash flow. Positive cash flow and the ability to demonstrate that the business can ultimately repay the loan are required for approval. That means the business must be profitable and able to repay this and all other debt based on the current and/or projected financial performance of the company. Talk to your small business banker to see if your business qualifies and to determine the amount of the line of credit.
Working capital is essential for any business to succeed. It is important to have access to working capital when a business needs it, and a line of credit can be a good solution. Talk to your banker to determine if a line of credit is right for you. TPW