Strong cash flow is essential to enable small businesses to prosper and grow. However, setbacks such as late-paying clients, seasonal fluctuations in sales, unexpected expenses, and sudden emergencies can devastate your company’s finances. One solution to these and other financial difficulties is a line of credit. Here is some information on lines of credit and how they can work for your business.
Basics of Lines of Credit
Lines of credit offer business owners an agreed-upon amount of funding that they can use in times of need. This money is available to you for use at any time, but if you don’t need it, you can keep it on hand for emergencies. If you have a revolving line of credit, after you repay what you have borrowed, the funds are available to you again whenever you need them. Lines of credit provide a safety net for businesses that helps to mitigate risks that inevitably arise.
The Difference Between Loans and Lines of Credit
Obtaining a traditional business loan is a one-time occurrence for a specific purpose. You are required to repay the loan monthly in fixed amounts for a predetermined period of time. However, you can apply for and obtain a line of credit before you need it and use it for any financial needs, large or small, as they come up.
Requirements for Lines of Credit
Banks and other lenders differ in their requirements for obtaining lines of credit. Some lenders insist on strict credit score minimums. Others are more lenient and extend lines of credit even if your credit score is not superlative. All lenders require your business to have steady cash flow and show a profit. That’s why it makes sense to apply for a line of credit when your business is doing well so that it’s there to access for emergencies. Additionally, when you are considering lines of credit, compare interest rates and fees, as these can vary widely from lender to lender.
For more advice on obtaining business lines of credit, contact Grecco Capital.