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When it comes to a small business line of credit, you can only draw as much as the credit limit determined beforehand. Here, a full amount is not given out at one time, which would be the case with a term loan. One of the most significant advantages of a small business line of credit is the fact that you only end up paying interest on the sum of funds you have drawn.
Now that you know that you know what a small business line of credit is let’s take a look on how it works and what seven features you should look out for to get the best deal for your business.
How it Works
This kind of line of credit is mostly used by businesses that need short-term working capital to finance unexpected expenses or to improve their cash flow. After repaying a draw, additional funds can be borrowed, making it perfect for your cash flow needs.
What is interesting about a small business line of credit is that it is quite similar to a credit card. You only pay for the amount you have drawn.
Every time you pay for the amount you have drawn from the balance of your line of credit, you will free up the number of funds available later on, which is not the case with a working capital term loan.
Once you have a line of credit, drawing funds will be the fastest way for your business to acquire the capital it needs for unexpected events or quick payments.
7 Features that Make a Small Business Line of Credit Attractive
1. Easy Approval
No matter how bad your business might be doing, getting a small business line of credit is a breeze. Of course, if things are rough, the terms and rates you get may not be ideal, but you will get a line of credit to sort whatever issue is holding your business back. Additionally, it is a more suitable option than getting a traditional loan.
1. Enhances Business Adaptability
For those times, when you have a limited time to take advantage of opportunities, a small business line of credit ensures you do not let such opportunities pass you.
2. Pay for what you Use
As mentioned above, you only pay on the amount you have drawn, and not on the whole amount available to you.
3. Evens out Cash Flow
With a small business line of credit, you can even out your cash flow, especially during slow seasons.
4. Lower Interest Rates
The interest rates are much lower than what you would get on even a credit a card. It doesn’t also fluctuate either, and if you pay on time consistently, you will get inexpensive access to capital.
5. Greater Control of Capital
With a business line of credit, as long as you make your payments on time, the amount of line of credit available will be returned. Due to this continuous access to funds, you will have greater control over your business finances.
6. Make Purchases too Small for a Loan and too Large for a Credit Card
Chances are you may be required to buy inventory or supplies that are too expensive to be charged by your credit card. However, it is not that expensive to secure a conventional loan. It is where a small business line of credit can come in handy, but only as long as you don’t exceed the maximum amount allotted to you.
If you want to use a line of credit to your advantage, then feel free to check out these useful tips here.