Does your business struggle with stable cash flow? When sales dip, equipment needs repairs, and customers delay payments, a business can have problems with cash flow. Every business, large or small, needs a cash cushion to pay for unexpected business opportunities and expenses. To lower the risk of bankruptcy, you need quick access to funds whenever you need them. Fortunately, a business line of credit like purchase order financing can help you with that.
What is a Business Line of Credit and What Does it Offer?
If you know how a credit card works, then you already have an idea on how a line of credit functions. A business line of credit offers flexibility that a traditional business loan cannot provide.
Once lenders approve your line of credit, they assign you with a predetermined credit limit where you can withdraw funds as needed. You only have to repay the amount you’ve withdrawn, plus the interest, within the agreed repayment period. Remember to make your payments on time to avoid tainting your credit rating.
Since a line of credit is usually revolving, you can pay back the loan and access the funds repeatedly as long as you don’t surpass your credit limit. Generally, lenders don’t charge a prepayment fee on a line of credit, so you have the option to pay back the loan earlier to save on interest. Once you’ve paid your balance fully, you can withdraw from your credit line again if needed.
How Your Business Can Benefit from a Line of Credit
Compared to more traditional forms of business financing, a business line of credit offers certain advantages that could benefit your business. Whether you’re planning on purchasing office equipment or expanding your working capital, a line of credit from SMB Compass can give you the cash you need. Here are other reasons why every business should have a business line of credit:
1. Greater Approval Rates
It’s easier to qualify for a business line of credit compared to traditional loans.There are financial institutions that accept applicants with poor credit, so a business line of credit is ideal for business owners who don’t qualify for regular loans. Small start-up businesses, especially, may find it challenging to qualify for traditional loans because of their lack of credit history. However, with a business line of credit, even those with less than stellar credit can qualify. However, they may have to settle for less than ideal term loans and higher interest rates.
2. More Control
A business line of credit allows you to use the funds in any way you like as long as it benefits your business. Business owners commonly use it to cover operating costs, bridge cash flow gaps, or pay for unexpected business expenses. You don’t need to specify how you’re going to use the loan in order to secure the cash
One great scenario is if you’re in need of extra cash to take advantage of business opportunities. For instance, your supplier offers a great limited-time offer on products. With a line of credit, you can take out cash and take advantage of this opportunity and get your business to save money in the process. You won’t have to think twice about grabbing opportunities when they present themselves.
Compared to short-term loans of similar size, a business line of credit typically charges lower interest rates. Although interest rates may be higher compared to traditional bank loans, lines of credit still prove to be more affordable than other credit options. However, keep in mind that rates may vary based on the stability of your cash flow, low credit history, and other financial factors.
This aspect is especially beneficial for small start-up business owners. Since they’re still trying to break even, they need to be able to find a financing option that offers flexible rates. This way, they won’t have such a hard time making repayments, or worse, defaulting on the loan.
4. Added Flexibility
In term loans, business owners are given a lump sum of cash which they need to repay regularly. With a business line of credit, you can use the funds whenever needed, then pay them to restore your credit limit. When you need it to address another business need, you can withdraw the funds again.
5. Build Credit
Another benefit of business line of credit is that it allows you to build your business credit. Since you don’t necessarily need a stellar credit score to qualify, you can get approved for one and use it to improve your business credit report. Just remember to pay your dues on time.
Business Line of Credit Long Island
A business line of credit Long Island gives business owners like you a fighting chance to access funds ASAP. If your business is struggling with cash and you need additional funding to take advantage of business opportunities, a line of credit is the way to go. You can enjoy flexibility, easy access to additional working capital, and better control all while improving your credit score.