Some things in life are nice to have, but they’re not necessities. Other things are vital to the successful functioning of a business. Many companies lines of credit fall into that category of essential tools. Once they experience the benefits, they can’t imagine how they managed their company without it. Why is getting a business line of credit such a great idea for small business owners?
It would be great if every customer followed a regular ordering pattern for their purchases, but that’s rarely the case. Often, client orders come in spurts, with months of low ordering amounts followed by a sudden, large order. Seasonal needs can also get in the way of ordering patterns, resulting in large surges of demand for specific items.
Put simply, it’s not easy to deal with so much chaos as far as inventory goes. The goal of business owners is to move products in as organized a way as possible, which lowers costs and maximizes profits. Sudden demand without the product on hand can lead to uncomfortable situations.
With business lines of credit, small businesses are much more flexible. They can deal with seasonal demand increases and emergency client orders. It’s also possible to order larger volumes of inventory and qualify for tier-based discounts, which saves the business even more money.
Protecting Cash Flow
Another common obstacle SBOs face is periods of slow cash flow. This can happen for several reasons: slow sales, market shifts, or customers that take too long to pay. Whether the problem is temporary or something of a habit, it’s essential always to have a backup source of funding to smooth things out. That’s where a business line of credit comes in.
For example, many healthcare businesses permanently must deal with cash flow issues because of insurers. Many insurance companies require up to six months to pay bills. In the meantime, an alternative source of funding is essential for keeping the lights on.
Revolving business credit can have a company’s back while waiting for customers to pay. Once the funds are received, it’s easy to pay off the line of credit, and the credit becomes available once again. This type of financing acts like a safety net when businesses hit turbulent waters.
A line of credit also offers better rates compared to credit cards and other short-term financings. The trick is to qualify before financial difficulties appear. Getting started right away is wise.