Better than a fixed loan, and more flexible than venture funding, lines of credit can turn out to be saviors for small businesses. The business line of credit rates are friendly, and small ventures should not ignore setting one up and staying liquid all the time. The following looks into the many positive aspects of a business line of credit compared to other loan options.
The nightmare for many small businesses is running out of cash and not being able to maintain operations due to paucity of funds. Enter the business line of credit, or a revolving line of credit. These are long term arrangements where a business can continue to withdraw or loan money as and when they need it subject to certain limits and terms. The money can be used to pay employees, buy equipment and requisite goods or any other operational need.
Lines of credit give more freedom to business owners, compared to bank loans where a fixed amount is dispensed and taken back within a preset duration. With a line of credit, a business can take out small loans as and when required, and up to a fixed total amount. On reaching the maximum amount, the line of credit is exhausted. The interest is paid on the amount withdrawn, and not on the total amount sanctioned.
Similarly, a revolving line of credit gives flexibility to withdraw and keep repaying the loan amount. A credit card uses this form of loan dispersal and repayment, and thus not paying back the installments can result in higher interests. The total amount sanctioned is again made available from the next cycle onwards, and hence the name ‘revolving’ line of credit. Here there are no monthly schedules for paying interest either.
Lines of interest look ideal when considering the many different reasons a small business may require cash and funds. These are also good for growing a business, and thus worthy of serious attention from small ventures and entrepreneurs.