A common question that often arises in the mind of business owners from startups and SMEs that, how they can manage the costs of their daily operations efficiently. A business regardless of its size is associated with multiple costs for maintaining inventory, paying monthly salaries and wages, maintenance of machines, and executing new orders – which is continuous, and most of them are considered as recurring expenses. While emergencies might be unpredictable, these are short-term expenses for which a business owner should be prepared with adequate funds at all times. Does it feel worrying? A smart solution to this, is a business line of credit, says Charles Spinelli.
What is a Business Line of Credit?
A business line of credit is basically a flexible loan option offered by banks and financial institutions to businesses to meet their need for funds and then repay the loan amount in due course.
One of the biggest advantages of a business line of credit is that compared to a traditional business loan – it does not require businesses to pay interest on the whole credit amount sanctioned. Rather, in this system, a business is obligated to pay interest only on the part of the line of credit that it has used. It also allows an overdraft line of credit and thus helps manage the need for cash flow at all times. The various reasons that have made it so popular include
Flexibility: A typical loan is defined as a credit amount allowed for a specified term and needs to be repaid within the period in full. Moreover, these kinds of funding can be used for particular purposes only, like loans for machinery. A good reason that businessmen look for business credit lines is their extensive flexibility which allows them to use the credit amount for other purposes too, such as making payments for staff salaries, buying inventory, etc. This makes it a flexible credit option.
Faster Access to Cash on Demand: Unlike general business loans, an ongoing business credit line allows businesses to obtain funding instantly on demand. As soon as there is a need for funds depending on the order flow, it comes in handy for businesses to borrow the needed fund and take care of both short-term and long-term funding needs. According to Charles Spinelli, often it meets the purpose of working capital which is the lifeblood of a business and enables access to funds at any given time that helps flourish one’s business smoothly.
Flexible Term of Payments: One of the great advantages of business line credits is that it needs to pay interest only on the part borrowed about out of the total credit limit. This lowers the interest amount while many credit lines offer flexible terms of repayment terms. Unlike any term loan, if any business faces a slump season, credit lines also allow the business owner to pay only the minimum amount due as stated in the statement.
Builds Credit Score : The value of a steady credit score is well understood by every individual and businessman today. Thankfully, business credit lines report one’s repayment habit regularly to credit reporting agencies. Thus, using credit lines and making their dues on time helps build and boost the credit score of a business steadily. This, in turn, increases one’s potentiality to avail future credit with a higher limit because of the increased credit score and creditworthiness of the business.