No matter how successful a business is, it will still face financial ups and downs from time to time. Business lines of credit are one tool for facing downturns and setting your business up to thrive on the other side. This article goes over the basics of how they can help.
What Business Lines of Credit Are
A business line of credit works in this way: Once the borrower’s application is approved, the lender gives the borrower access to a pool of money. The borrower can withdraw money from that pool up to the credit limit. For instance, if a construction company has a $3,500 line of credit, it could withdraw $500 and still have $3,000 in available credit left over. After withdrawing money, the borrower pays it plus interest back over time, usually with monthly installments.
How They Help
Business lines of credit are invaluable when it comes to managing cash flow issues, as explained by Inc.com’s Jared Hecht. Because businesses choose how much to withdraw, a business line of credit offers more finesse than lump-sum loans that can lock businesses into paying back a huge amount. This funding option also can help head off the need to give up control of your business by turning to investors for help.
A business line of credit is also highly flexible when it comes to uses, unlike certain other funding sources. For example, they can be used for these tasks and more:
- Funding payroll.
- Purchasing supplies.
- Boosting inventory.
Additionally, a business line of credit can be a godsend for cyclical businesses. Returning to the example of a construction company, for instance, a line of credit could help that business withstand a rough winter when construction projects are difficult to complete.
All in all, credit lines are something every business should consider. For more information on financing and additional business topics, take a look at Gulf to Atlantic Commercial Capital’s other blog posts.