With over 30 million small businesses in the US, it’s likely true that most of them don’t have access to limitless working capital.
Businesses have to get money in order to operate and grow, but without the right types of financing, a small business can easily fail.
Luckily, a small business line of credit might be able to help.
Keep reading as we explain what this is and how it may be something for your small business to consider.
What Is a Small Business Line of Credit?
Instead of getting a fixed amount of financing, you’re able to get a certain amount of money that you can borrow to repay later. This is similar to how a personal credit card might work.
The main reason that this is offered to business owners is that it helps them have consistent access to funds so that they can keep their business afloat during ebbs and flows.
Even if your business expenses and revenues are changing, you’ll still have money available to you that you can use when you need it for your business.
How Does a Business Line of Credit Work?
This is considered a flexible loan option for a small business that gives you a line of credit for business expenses. You can access these funds and pay them back as you need them so that you can choose when you use that borrowed money.
Generally, you’ll only have to pay interest on the money you actually use from the credit line, and these interest rates could be fixed or variable (depending on your lender). You may also have a fee to pay each time you access the credit, but make sure that you carefully read the terms and conditions to know what charges you’ll have to deal with.
If you’re getting your loan from a bank, you’ll have a specified repayment period and a specific draw period. These are times in which you must repay your outstanding balance or you can access funds to make interest-only payments.
What Are the Benefits?
The biggest advantage to this option is that you can get money when you need it as opportunities that require funds arise. For example, if you have the chance to expand your business, but don’t have the money available right now, you can draw from the line of credit so that you don’t miss out on your chance to grow the business.
You also get working capital that you’ll need for general expenses, like paying bills or rent, which can be helpful when business is slow. You’ll want to look at these things to know about payroll funding, for example, and how your line of credit can be used in this way.
Another benefit is that you can use the funds to pay for products or services before your clients are able to pay you back. That way, you can cover all of your business costs even if it takes a while to receive payment.
How Can You Get a Business Line of Credit?
You’re able to apply for a line of credit with a:
- Bank
- Credit union
- Online lender
- Business loan broker
- Online marketplace
The lenders are going to look at how long you’ve been in business, what your personal or business credit scores are, and what your financial statements look like. This will tell them whether or not you’ll be able to likely pay back the credit as you use it or not.
Using a Line of Credit to Grow Your Business
If you’re eligible for a small business line of credit, you should take advantage of it today. Get in touch with your preferred lender to see what your options are, and give yourself financial flexibility going forward.
Did you like this article? If you did, check out more of our small business tips in our blog next.
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