Most small business owners require paying for
a range of business expenses constantly from rent, bills, purchasing inventory,
paying salaries/wages, and a host of other operating costs. These expenses add
up frequently, mostly when the payments from the customers get delayed, for
late billing, disputes with customers, and so on. This is the basic reason why
lacking sufficient cash flow is a common scenario in small businesses which
toll on its growth rate. Among the various options available to meet the cash
flow, one that has become a popular choice for businessmen is a business line
of credit, says, Charles Spinelli.
Continue reading to know more about the business line of credit and its
advantages.
A business line of credit can be defined as a
predetermined funding or credit amount that businesses can borrow whenever they
are in need and repay later. Differentiating from traditional term loans, it
can be used for business-related purchases such as inventory, machinery,
supplies, or managing operating costs. Unlike a term loan which has a fixed
monthly repayment, the borrowers can typically pay back their credit line
anytime, and without making any early repayment fee.
Noteworthy, what makes it unique from general
term loans is that it is ‘revolving’. In other words, the borrower can utilize
the funds up to its approved limit and then once it is repaid, the fund become
accessible again. On the contrary, a term loan is a lump sum credit that a
business can obtain at a time and repay with interest.
How
A Business Line Of Credit Can Benefit A Business
As stated by Charles
Spinelli, all businesses require
easy access to funds to run their business operations, however, many times they
struggle due to lack of adequate working capital. This can even be threatening
to the sustainability of the business. Having a line of credit facility can
come in immense help to deal with these frequent expenses with confidence
considering access to the required working capital whenever needed because of
its revolving nature. It can be a great way to meet expenses like purchasing
inventory, covering payroll, paying salaries, establishing a new office,
running marketing campaigns, etc.
The
Advantages of Business Line of Credit
The
Flexibility Of Usage: Typically, a closed-end
loan can be used for specific business purposes, for instance buying advanced
equipment. What makes a line of credit unique is that it offers absolute
flexibility of usage. This means businesses can use it for purchasing stocks,
paying salaries, buying office cars, or other business purposes, etc.
Cash
on Demand: Unlike general loans, a business credit line
gets access to funds whenever the business needs it. With a credit line, one
can borrow money to deal with the short-term needs of a business. This helps
the business run smoothly and without any trouble.
Flexible
Payment Terms: Opting for traditional loans comes with
a de-determined monthly repayment term that often appears challenging for a
start-up enterprise. On the contrary, a revolving business line of credit
offers flexibility in repayment terms. So, if the cash flow is poor, one can
pay just the minimum amount due.
Builds
Creditworthiness: Adopting a business line of
credit enables a business to build a persuasive payment history to the lenders
as all its transactions are displayed in the credit report of the company.
Repaying timely and reusing the revolving loan will potentially build the
company’s creditworthiness.
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