You’re going to need a business line of credit in the ups and the downs, here’s why.
The reality is even if you’re growing rapidly, every business goes through seasonal cash flow cycles and unexpected expenses or the occasional slow paying customers.
If you’ve been in business for a while you know that sudden changes in cash flow can hurt the bank balance and your mental health. Having access to a business line of credit can protect you through the turbulent times without digging too far into profits.
What exactly is a line of credit?
A business credit line is a flexible loan given by banks or alternative financial institutions. It gives business owners access to a specified amount of money that can be used as needed or can be offered as a revolving line of credit.
A standard line of credit has a set repayment schedule and a revolving line of credit allow repayments and drawdowns as needed without fixed repayments or schedules. The loan terms on a revolving line of credit can be compared to a credit card, without the need to repay the balance back in full each month. It remains open accruing interest on the balance outstanding.
What’s the benefit of a business credit line?
Cash in the bank is the most liquid asset and that’s why it’s crucial to have funds on hand for general business cash flow issues, unexpected expenses, new opportunities or to overcome any dips in your business’s monthly revenue.
Sometimes you need cash when it’s not available due to slow paying customers. In situations like these a business line of credit is essential because it can close a cash gap allowing you to pay wages etc. without disruption.
Usually a business line of credit is used to pay for working capital needs, or to make inventory purchases and so on. Opportunities sneak up on you really fast, and you’ll need to make sure you have the credit available to take advantage of it. The ideal credit line is something that sits in the background and you only pay for it when you drawdown (with interest rates based off the outstanding balance) adding a kind of security blanket that you can throw over when a dip occurs or a growth opportunity.
How do I get a line of credit?
To get a line of credit for your business, you’ll want to have been in business at least 12 months, and you’ll need annual revenue of at least $100,000.
There are several other factors involved, such as the type of security you’re willing to offer such as property, equipment or receivables.