As a small business owner, there’s nothing more important than having a firm grasp of your finances at all times.
In a perfect world, you would always have enough money in the bank to purchase anything and everything you need to grow your business.
In the real world, you know that this is not likely to happen, at least not early on. This is why you need to consider all your options for funding your growth.
A business line of credit is a great place to start. With varying loan amounts and terms, it may be just what you need in order to gain access to the funding you need to reach your goals.
With all this in mind, let’s examine some of the top advantages of a small business credit line:
- Fast Funding
While there are many benefits of taking venture capital, the loss of control can be a red flag for the entrepreneurial spirit of small business.
With a business credit line, this isn’t something you have to worry about. Fast funding is the name of the game, with the potential to get your hands on the money within one business day.
If you need money now and aren’t willing to wait, this is one of the best decisions you can make.
- Available When You Need It
When you apply for a business credit line, you are approved for a specific amount of money.
Generally speaking, credit lines range from $10,000 on the low end to more than $1 million on the top end.
Once you know your limit, you can gain immediate access to the cash. An example of this would be a business with a $100,000 limit. If you need to borrow $50,000, you don’t have to ask anyone for permission. It’s as simple as withdrawing money from your bank account.
- You Only Pay Interest on the Funds Drawn
One of the biggest drawbacks of a loan is that you will pay interest on the entire amount, regardless of what you have done with the money.
With a small business credit line, you only pay interest on the funds drawn.
So, even though you may have a $100,000 line of credit, if you only access $50,000 you’ll only pay interest on that amount.
This arrangement can save you thousands upon thousands of dollars in interest over the course of a year (not to mention the savings over the entire term).
Note: interest rates for small business credit lines typically range from 7 to 25 percent. The rate you receive depends on many factors, including the amount of money you are borrowing and your business credit score.
- Bad Credit is Acceptable
When applying for a loan or credit card, bad credit can often disqualify you from receiving an approval. This can be disheartening. It can also slow you down from growing your business.
Bad credit won’t necessarily stop you from receiving an approval for a small business credit line. It may result in a higher interest rate, but you can still gain access to the funds you require.
- Build Your Credit Score
When was the last time you reviewed your business credit score?
If you’re looking for a way to build or improve your credit score, a business credit line can help.
The only thing you need to do is use the line of credit and make payments in full and on time. By doing this, month after month, your credit score will begin to rise.
It’s not the only way to build your credit score, but it’s definitely something to consider.
Questions to Answer
By now, you have a better idea of the advantages associated with a small business credit line.
If you like what you’ve heard and think this could be right for your business, there are a few key questions you need to answer before you jump in:
- How much money do you need to borrow? It’s a good idea to have a number in mind, despite the fact that the lender will set the final amount.
- Which lender is best for your company’s current situation? You can apply for a small business credit line through a local bank. You can also turn to an online lender if you require faster funding.
- What do you consider a reasonable interest rate? Since you’re likely to pay interest when you borrow funds, you’ll want to shop around with this number in mind. It’s not the only thing to consider when applying, but a lower interest rate can definitely point you in the right direction.
Any questions that are rolling through your mind should be addressed before signing on the dotted line. You don’t want to have any doubts when you finally decide to move forward with your application.
With so many advantages of a credit line, there is no wondering why so many small businesses (spanning a variety of industries) turn to this when they need cash.
By learning more about the benefits and comparing them to other options, you can make an informed and confident decision.