Dianne Pajo
Providing funding to start or continue your small business is a characteristic element of the process. However, you may not always have enough to cover equipment and other expenses. Luckily, there are plenty of options available that allow business owners to borrow a determined amount of money to help alleviate costs.
As one of the most popular ways to receive funding, a business line of credit allows companies of all sizes to access necessary funds and repay over time. Often, you’ll pay interest solely on the borrowed amount. In this article, you’ll discover several reasons to have a business line of credit and how it can help your budding company.
Separates Business Expenses
As your company expands, you may notice that separating business expenses from personal costs may be challenging. Once you’re approved for a business line of credit, you can distinguish costs by solely dedicating newly acquired capital to your company.
Having a separate account to allocate these funds may make it easier to track costs, making your small business look more professional to investors and partners.
Promotes Flexible Repayment
Business loans typically require borrowers to repay funding on a set monthly amount, regardless of the amount of credit used. In turn, this could present financial challenges to small businesses that don’t have enough funding to continue their growth.
Fortunately, a business line of credit is revolving, so businesses can establish flexible repayment conditions that best suit their budget.
Improves Your Business Credit
Similar to borrowing funds through a personal loan, business lines of credit may rely on a company’s credit to determine whether the lender wants to take on the approval risk. Your business may need to establish its credit ratings; without them, your company may not be eligible for future business loans.
However, business lines of credit help build a positive history if you continue to make timely payments and maintain a low credit usage.
Maintains Steady Flow of Capital
Lastly, business lines of credit allow your small company to maintain a steady cash flow and greater capital control. Traditional loans can offer a lump sum of funding requiring repayment at a fixed interest rate.
On the other hand, lines of credit allow you to use your capital as necessary, granting more control by taking what you need when you need it.
There are plenty of reasons to have a business line of credit, even if your company isn’t short on funding. Access to additional capital may help your small business maintain a steady cash flow without worrying about lump-sum disbursements when opening your account. You also won’t have to worry about getting stuck with monthly installments if you don’t use your line immediately.
