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A business line of credit is similar to a loan and a credit card or a combination of both. Unlike a regular loan, you only pay interest on what you borrow. And like a credit card, you withdraw and repay funds at any time up to the credit limit you’ve been approved for. Lines of credit range from $1,000 to $250,000. And the repayment timeline typically falls within a six-month to three-year span. Business line of credit requirement is easy to attain when your business has been around for six or more months and your credit score is at least 575. Depending on how established your company is, will decide the terms that you will qualify for. Below are benefits to opting for a line of credit for your business.
- Manage Cash Flow
When businesses encounter a “slow season,” lines of credit are a great tool for balancing out cash flows. It allows for certain industries to maintain positive cash flows when they know they may be tight for funds at certain parts of the year. For example, landscaping companies in the North may forecast that work will be decreased due to weather. This may cause an issue with having enough funds for payroll during the winter months. This is when a business line of credit would come into play to make sure the business stays in the black.
- Take Care of Emergencies
Most emergencies that a company endures are unexpected. Not all companies have the funds to afford said emergencies or emergency preparedness items. Emergencies that could happen are building fires, weather damage or even software hacking. Emergency preparedness could entail keeping the office building up to code or investing in a new software to protect files. Since these situations often happen at inopportune times, lines of credit can be used to cover the costs.
- Upgrade Inventory
Let’s say your equipment is outdated and the best brand is having a limited, “can’t miss sale.” The only problem is you don’t have enough money to cover the upfront costs. A business line of credit allows you to not miss out on opportunities that arise. Just because you don’t have the cash right away doesn’t mean you should have to limit yourself. Lines of credit allow businesses to have flexibility in how they use these funds, especially in times that could help their business grow.
- Improve Credit Score
Business lines of credit are a great way to build and improve your business credit score. The key is to pay off what is borrowed before or when it’s due, just like a credit card. The more you show you can be responsible with the lender’s money, the quicker your credit will increase. Plus, the more business credit history you have, the better interest rates you’ll be offered. It works the same way as your personal credit.
The business line of credit offers companies the support that allows them to keep its business operations running to the best of their ability. Lines of credit are there for businesses to not miss out on opportunities, keep their cash flowing, bounce back from emergencies and improve credit scores. They allow flexibility to cover costs when your company needs them and allow you to pay them back at a set deadline that are set within the terms.
