Learn the Basics About Business Lines of Credit
Credit lines are one of the most common and useful financing tools for companies big or small. Not only are they generally faster to access and easier to get approval for than most term loans, they are reusable, so you can keep paying them back and drawing again as you need to access short-term funding. This revolving aspect, combined with the fact that credit lines provide a cash draw instead of a card for purchasing transactions, makes them one of the most flexible financing tools out there. In fact, for many companies the credit line is the first step toward building a credit history. Here’s what you need to know before you pick a provider.
Research the Perks
Lines of credit and credit cards have one thing in common, and that’s borrower perks. While you won’t find the same kind of point-based rewards that cards use when you look at cash draw credit lines, you will be able to count on offers like 30 day grace periods before interest is charged and interest breaks for customers with loyal and timely payment histories. The structure and nature of these perks are different from lender to lender, so make sure you’re picking a program whose perks will really help you.
Look at Program Terms
Generally, credit lines are based on your income, so you can expect they will grow with you as your business expands. That takes a review of your account, though. To understand how much you’re likely to be offered and how much work it will be to expand the credit line, read the program terms to see what, if any, borrowing tiers they have. Some will have parameters like “up to $50,000 for businesses with an income below $1 million annually.” Those statements help a lot when you’re trying to get a feel for your options.
Diversify Your Borrowing
Lines of credit are a great way to manage cash flow and small purchases like petty cash supply runs, but they’re generally limited in size. They also charge interest that is in line with unsecured borrowing, so they aren’t the best idea for large asset purchases. As a result, they aren’t always the right choice for financing. You’ll get the most out of a new credit line when you open it to serve a specific purpose like covering when invoice payments are late coming in. For scenarios where you need capital for reasons outside the purpose of the credit line, it’s a good idea to open a second line or pursue another product. It helps you keep your finances organized.