According to a study by U.S. Bank, around 82% of business failures are due to the inability to properly handle the cash flow. Most business owners need to have a better understanding of where they can quickly and inexpensively obtain capital. This is where a business line of credit comes in.
This type of funding is designed to give small businesses the capital they need. It functions a lot like a personal line of credit or business credit card. However, it’s a cheaper way of accessing cash advances. You can secure a line of credit up to a certain amount without having to put up collateral.
A line of credit is something that every business needs because it’s critical to have adequate cash flow at all times to meet goals and grow the business.
Perks of a Business Line of Credit
Many perks come with a business line of credit. We will explore some of those below.
More Control of Capital
A traditional loan gives you a lump sum to pay back with interest over a certain period- but a line of credit allows you to access funds when you need to. This way, you are in control of how much you take and when. Plus, you only pay interest on what you use instead of the full amount.
Once you have a line of credit, you have the flexibility to use the cash where and when you need it. Some of the closed-end loans require the cash to be used for a specified purpose and traditional loans have fixed monthly payments that can be challenging for new companies to meet. However, a line of credit offers flexible repayment options. Plus, as you pay it back, you have access to borrow those funds again.
According to a survey by Federal Banks, during Q1 and Q2 of 2014, only 50% of entrepreneurs applying for a small business loan were approved. This likely was related to the applicant having bad or no credit. A business line of credit can be used to establish and improve credit so that you can access loans in the future if you need to.
Lower Interest Rates
In most cases, a business line of credit follows the prime lending rate, which does fluctuate and is typically lower than the interest rate on a credit card. If you pay on time, rates will stay low, and you’ll have cheaper access to cash and may even see your limit increase.
Allows Access to Short-Term Funds
As a business owner, your focus needs to be on your products/services and your customers’ satisfaction. You don’t want to get started on a project only to stall because you’re short on funds. A business line of credit allows you to quickly access the funds that you need.
Can a Business Line of Credit Work for You?
While you do want to take advantage of these perks, you don’t want to overdo it. Many times, small businesses use too much of their line of credit, which limits the control and flexibility they were looking for when they applied.
However, if you can use it strategically, you can make a business line of credit work for your small business. Contact Critical Capital Solutions today to learn more about this funding option for your small business. We can help you understand how to make it work.