What are the benefits of a business line of credit?

The main benefit of a business line of credit is having the funding available when you need it. Line of credit allows business owners to have a specific amount of capital. You can fill the gap in your working capital. The flexibility of capital is an essential factor for any business.

Don’t lose sleep when your working capital is tight! It can create an array of different problems. Small businesses owners experience too many negative surprises! Smart business owners always have a contingency at hand to deal with such surprises. Working capital enables you to cover short-term expenditures. You can pay for payroll, purchase inventory, cover payables or extend your collection efforts on receivables. You can secure favorable terms, expand your business, purchase more equipment, hire new employees or purchase real estate.  Below, we’ll cover some of the major benefits a business line of credit offers.        

1. More control of your business working capital and opportunities. 

Business working capital is defined as the current assets minus current liabilities. To sum it up, it’s the amount of cash that your business has minus your short-term debt obligations. Majority of small business owners do not have much control over their financing. It’s a major hurdle! Securing a business line of credit you gain more control over your working capital needs. You could tap into funds when you’re ready and when surprises occur. You’re ready at all times! Have control in how much money you need. Cover any expense and only pay interest on the amount that is used. 

As you repay the line, you can get access to those funds again. You are essentially gaining the freedom! Make vital business decisions without the need to rely on other unfavorable sources for capital. Moreover, spend time to seek a new lender and go through a funding process again. As a business owner, you need a lending advisor so your main focus should be on operating the business. Many business owners complain of not being able to secure a project or expand operations due to limited working capital. With a business line of credit, you are setting yourself up for more business opportunities. Business owners who are successful with having enough capital always seize business opportunities as soon as they get the chance.     

2. Manage cash flow during slow and peak season. 

Seasonality for any type business is a difficult period of time. The revenues are at year-low and a period that causes a lot of stress. Since the line of credit is typically determined during your regular revenue months. The availability to draw funds should not change. This allows you to keep your cash flow at a positive working capital level. When you get back on your feet and your sales increase, then you can repay the line back. You can pay your regular expense by using your credit cards as a source of borrowing. Credit cards carry high interest rates, so think twice! You cannot cover the most essential short-term liabilities such as rent or payroll by using a credit card. Majority of vendors want check or cash as a form of payment. 

Businesses that highly depend on the holiday season are sensitive when it comes to financing. They generate a good portion of their business during certain months of the year. They also experience working capital problems. Majority of seasonal businesses need additional working capital to maintain their profit margins. This includes purchasing additional inventory or hiring employees as main reasons. With a business line of credit, when you draw on the line and obtain the funds instantly. This is the most logical type of financing regardless. If you are anticipating slower or busy than usual period in your business cycle, you need to prepare early on.    

3. Flexibility of paying for only what you need. 

With a line of credit, you only pay interest on the amount that you draw. Many business owners do not use the entire amount. They use a fraction, just to cover what your business needs actually needs without any extras. With other types of financing products, you don’t have the flexibility. Majority of time you pay interest on the extra versus what you used it on. You could be paying interest and fees on the funds you realized you didn’t need. Depending on the terms and agreement, you may have an early payoff option. You can payoff the entire balance early at any time without being open to prepayment penalties. 

4. Build a relationship with the lender. 

Business line of credit is similar to credit cards. The more you use and pay, the more credibility you build with your lender. Next time, when you need working capital or piece of equipment you’ll already have a relationship. You wouldn’t have to spend your time and stress to find a new lending company to work with. Moreover, you wouldn’t have re-apply and go through the entire process again. Creditfy’s reputation is to develop long-lasting relationships with our customers! Offer superior terms in the future when there is an additional need for financing. Strong payment history enables you to negotiate better terms – don’t forget this! Benefit from lower rates, longer terms, better payment structure and lower fees.

Another positive factor with a lender is developing a positive business credit history. Many lenders report your payment history to credit bureaus and other credit sources. This could be a great way to increase your credit score or business credit report and show stronger credibility. 

5. Build a better relationship with vendors and customers.   

Account receivables and payables are a way of measuring how fast you could collect your money and pay debt. You always need to balance these! With a line of credit, you can benefit from a cushion of cash. Allow your primary customers to have more time to pay you. This increases your relationship with them and shows them a factor of trust. When it comes to payables, by paying faster you can ask for discounts from your vendors. You can also get better terms besides lowering your business debt.    

Many customers believe that when a business is desperate to collect their receivables from them, it makes them look desperate. Customers always want an option of flexible payments and more time to pay their debt. Imagine if someone told you that you don’t have to make a payment and you have more time. How would you feel? You would feel better about that vendor and a feel as a loyal customer.  

6. Safeguard your valuable assets with an unsecured line of credit.   

Most of the lenders offer unsecured lines of credit that do not require you to use your assets as collateral. This is very important for any business owner to consider versus using your personal home as collateral. You have enough stress in operating your business and you should not worry about your home. Ideally, you want to separate your personal affairs from your business and vice versa.