Benefits of Opening a Business Line of Credit
Learn about some of the benefits of opening a business line of credit.
For small companies seeking financing for their own growth or to pay off expenses, opening a business line of credit can be an attractive option.
NerdWallet explained that a business line of credit is akin to a type of small-business loan that provides more flexibility than a regular business loan. A business line of credit works similarly to a credit card: Organizations can borrow up to a certain limit - like $50,000 - and only pay interest on the portion of money borrowed.
This product gives organizations the flexibility to draw and repay funds as needed, as long as it doesn't exceed the credit limit. Here are some other benefits of opening a business line of credit:
Even out cash flow
Small businesses may feel the struggles of an inconsistent cash flow more so than large corporations. This is especially true for businesses that operate on a seasonal basis, like ice cream shops or ski resorts.
According to SCORE, these companies can benefit from a line of credit to help pay expenses during leaner months. When business is slow, owners can draw from the line to make essential purchases, and when the crowds return can begin making payments back.
Taking advantage of automatic payment discounts can also help small businesses even out their cash flow and stay on top of paying down debts.
Business lines of credit are similar to credit cards, except they offer higher credit limits.
Pay off unexpected expenses
A line of credit can also serve as an emergency backup fund during tough times. While it's not a solution to extreme debt or loss of income, it can help cover unexpected expenses or to make essential purchases in times where a business may not have enough cash on hand to cover it up front.
A business line of credit can offer more credit than a traditional bank card but not as much as a business loan, so it's a good option for businesses that need coverage to make mid-range purchases.
The Chamber of Commerce recommended that companies that want to build their credit ratings could benefit from opening this line. Working with a bank or private lender can be the beginning of building a long-term relationship with a trusted financial institution. If the business owner continues to make payments on time and never exceeds the credit limit on the account, they can effectively build the business's credit to improve the chances of receiving more favorable financing options in the future.
Who should apply for a business line of credit?
Companies with strong revenue and credit history could find opening a business line of credit extremely helpful in receiving some extra cash when they need it the most. The Chamber of Commerce reminds borrowers: This financial product should only be used to cover temporary cash flow shortages .
To learn more about opening a Business Access Line of Credit*, contact your local Vectra Bank representative today.
*Loans subject to credit approval. Terms and conditions apply. See banker for details.