For small businesses, lines of credit are like having a loan on tap. You can withdraw money up to an amount that has been decided upon. Then, when you pay it back, you have the sum to borrow from again. No doubt, you will have moments while running a business that you need a little extra money. A business line of credit serves as a good solution for these moments. In fact, here are five advantages of a business line of credit.
Lower Interest Rates
Credit cards tend to have high-interest rates. Now a credit line has a higher interest rate than traditional loans, but it has a lower interest rate than credit cards. The problem with loans is that they have a longer repayment and you have to pay it back right away. With a credit line, you have affordable interest rates and flexibility.
Improved Cash Flow
Cash flow fluctuates and can be unpredictable at the best of times. If your company is seasonal, you will have particularly slow periods throughout the year. If you won’t sell inventory for several months, then you will need help managing your cash flow. Lines of credit are beneficial for these times.
Emergency Funds
Emergencies happen. No one wants to think about it, but you do need to be prepared. Credit lines serve as a good buffer and safety net when tough times arise. If you use it wisely, you will have the money if you’re in a crunch.
Pay and Borrow When Needed
When you get a loan, you have to start paying it back almost immediately. With a line of credit, you only pay when you use it. If you don’t use it for several months, then you won’t have any payments. You get the flexibility that a traditional loan won’t provide you. Once you pay off the line, you can easily start borrowing again.
Make Any Purchase
In some cases, you might need supplies that will be too expensive to put on a normal credit card. Likewise, they may not be large enough to ask for a loan. In these cases, you need something that’s in between a loan and a traditional credit card. A line of credit serves as the perfect in between.
When it comes to financing for your small business, there are many options available. When you need extra financing for supplies or emergencies, lines of credit come in handy. They are more advantageous in these instances than credit cards or traditional loans.