Any business owner knows that there are going to be times when working capital is tight. You need to cover your overhead, but unexpected expenses popped up, or you’re in the depths of a slow season.
When this happens, it’s up to you to make some tough decisions. Do you skip paying some bills? Take out a loan? Cross your fingers and hope for the best?
Don’t worry. There’s a solution.
Entrepreneurs today have financial alternatives that weren’t available as easily for prior generations. In the past, a loan was the traditional method of securing any outside financing. But now, you have options like lines of credit.
So how can a line of credit help your business? When you know how to use the funds strategically, they can get you through your rough patch and to the other side in better shape than ever.
Table of Contents
1. It’s Like—But Better Than—a Credit Card
Opening a line of credit is similar to using a credit card. You’re given a maximum amount you can borrow, and you pay it back per the terms of your agreement. During the length of the term, the funds can be used as much or as little as you need.
Borrowers in dire straits appreciate that for a time, you can access the funds and make interest-only payments. By the time the outstanding balance is due, your company should be in better financial shape.
And since a line of credit typically has lower interest rates than a credit card, it’s easier to pay on principle if you want to get rid of your debt faster.
The differences between the two financing sources make a business line of credit the preferred choice.
2. You Can Use It at the Last Minute
When you take out a loan, you’re making monthly payments on funds that you no longer have access to because you used it. If you still have the money, it’s just sitting in your bank account.
A revolving line of credit comes in handy when you need money at the last minute.
Predicting consumer behavior isn’t an exact science. People may surprise you with their purchase and payment behavior. Even those savvy owners who sit down and analyze their cash flow estimations regularly aren’t always right.
Maybe you expected big sales over a holiday, and they were less than you projected. A client didn’t pay their invoice on time, and you already allocated those funds to cover a bill.
Whatever the reason, you need money fast. Loans can take weeks to get approved, and a long-term monthly payment isn’t cost-effective for a short-term fix.
Using a line of credit and then paying it back quickly lets you move on with your budget.
3. Line of Credits Can Help Your Credit
Your company is going through a sour patch, so why not make lemonade from it?
An open line of credit in good standing is a healthy way to build your business’s financial reputation. Just as a gently used credit card shows you can handle repaying loans, so does a line of credit.
As long as you don’t use most of your limit and you make your payments on time, you can use this setback to come out ahead.
Boost Your Business Credit Rating
Building or rebuilding your professional credit will increase the opportunities you have in the future for the best financing loan terms. Some contractors base your invoicing limit on your business’s credit rating.
You can do all this with a credit card. However, a line of credit often has lower interest and a specified payoff period. It’s a smarter solution for entrepreneurs who need working capital quickly.
If you don’t want to get stuck with long-term monthly payments that never seem to disappear, avoid loans and credit cards. Stick with a line of credit or another alternative.
Conclusion
If you were stuck in the obsolete thinking patterns that the only way to get money is a loan, you’ll be amazed at the options you have. Yet only a few of them have the benefits of a business line of credit.
And the best part? It’s easy to apply and get almost immediate approval for these financial solutions.
Instead of viewing this economic trial as a stressful headache, look at it as a chance to use a line of credit and come out of the rough patch financially ahead.
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