Business, especially small business, will need to have a revolving balance. Sometimes a company might experience some temporary liquidity issues. In other cases, companies turn into debt to survive. While individuals can certainly manage debt as painless as possible, lending for companies is nearly obligatory.
There are several financial institutions that would provide you loans to meet your requirements. However, you may need to fulfill a few conditions so that you can qualify for the loans. One of the best means of meeting the requirement of loans is to get it through Business Line of Credit. We will discuss this concept in finer detail.
What is Business Line of Credit?
A Business Line of Credit can be comparable to the credit card available for individuals. Compared to the small business loans, it would be practical enough to go for the Business Line of Credit as it will provide you a revolving capital to run your business.
The only difference between a credit card and a business line of credit is the latter provides you cash and has a lower value of APR compared to credit cards. This can be the best way to ensure short term funding requirements. The Business line of credit is availed by small businesses for managing their operational expenses and payroll requirements of their businesses.
How does it Work?
As a business owner, you need to be ready for the emergencies. It should help you react to emergencies when you have no other options to satisfy a good deal of financial requirements.
There are a few ways you can have access to Business Line of Credit. You can either go for a business line of credit by means of a personal guarantee, or on the basis of collateral guarantee. A Business Line of Credit lets you obtain revolving credit. This would be helpful in accessing it whenever you want it and only need to pay back only the balance of what you have used.
If you have used a credit card, you will understand how it works. Let us suppose, you have been approved a credit of $ 10000, and you have spent $ 6000 of it – you will leave $ 4000 in your balance. If you pay off $ 3000 after a month, you will be left with a balance of $ 7000 in your account. Interest will be applied only on the amount you have used, but not on the amount that has been approved to you. The interest applied would be only on the amount outstanding on a daily basis. There is no need to reapply for the loan again. As long as your account remains in good standing, you will continue to get the revolving credit.
The Pros and Cons
Well, as with any other service, the business line of credit does come with its own set of pros and cons. Some of them are –
Pros
- You will continue to have a revolving credit. This will ensure that you will keep having access to the business capital.
- No need to pay extra interest on the amount that you have not utilized. The interest would be applied to the balance that you have used on a daily basis.
- There is no concept called Bad credit in Business line of credit concept. You can pay your outstanding or part thereof and continue enjoying the benefit.
- If you make regular payments, you would be able to build a credit score. This would help you get still better finance facilities.
Cons
- You may need to provide the documents while drawing money each time.
- Collateral security may be needed in case of some lenders.
Traditional Loans and Business Line of Credit – What Should I Choose?
Indeed a good question; but not as easy to answer. The only solution we can offer is to say it depends on how your business is built. Is it onshore or offshore?
The foremost feature that it works best for you is with its lower rate of interest. However, you need to be careful in making payments regularly. If you fail to make regular payments or tend to default – your interest rates would increase.
You may need to assess the financial needs that you have. If the requirements are flexible in nature, you can go for Business Line of Credit. On the other hand, if you are looking for a specific expenditure or specific transaction in mind, traditional loans may be a good idea.
The Final Thoughts
Business Line of Credit Hub is the best option for you to get the best deals on Business Line Credit offers. The small business line of credit ensures you are the proactive businessman. It will help you invest in excess capacity or for an emergency.
You do not need to go through the traditional loans to finance your investments or emergency requirements of your business. The flexibility that the business line of credit offers you would be the perfect choice for making better financial decisions. Implemented and thought out, you prosper in your business.