Why a Line of Credit Can Be an Asset For Your Small Business
The need for cash arises frequently in a small business environment. Whether you are just starting a business, or need funds for an established one, there are countless reasons why a sizable influx of cash might be necessary.
Lines of credit can be a useful and reliable way to access money for business purposes. They also have unique features that make them distinct from other loans.
Flexible Spending
Once approved for a line of credit, you typically have wide latitude to use the funds in ways applicable to your particular business. This differs from many loans, where the terms for use of funds may be closely spelled out by your lender.
Consequently, lines of credit offer distinct security, allowing you to draw on money when you need it, for potentially widely varying reasons. Best of all, you’re under no obligation to borrow; you can take money as you need it, and repay it when you’re able.
Build Your Credit
Using a line of credit can be an effective way to build your business credit. Similar to a personal credit card, consistent spending and repayment through a line of credit will demonstrate reliability to lenders, and boost your credit profile — potentially allowing access to more substantial loans down the road.
Even maintaining a line of credit for simple, small purchases — regular items that you buy, and for which you are quickly able to repay — can be an excellent, conscious strategy for building your credit score.
Prepare For Emergencies
Lines of credit can be an invaluable lifeline in emergencies. An emergency repair — such as a burst pipe, or electrical issue — may require immediate outlay of funds, and a line of credit allows for quick access to this money in a pinch. More substantial needs may arise — for instance, money may be needed after a more substantial disaster, before insurance or other relief kicks in. In such cases, a line of credit can literally make the difference between staying afloat and going under.
In short, there are countless reasons why a line of credit can be useful in a small business environment, when used responsibly. It is important to take into account best borrowing practices: a line of credit is typically not ideal for substantial, pre-planned borrowing, as interest rates may be higher than they would be for a term loan. But it’s invaluable for certain circumstances, and may be an excellent asset for your business.
