If you aren’t sure exactly when you will need extra funds or what you will need it for, a business line of credit may help you manage cash flow. Here are some practical tips and strategies for effectively using a line of credit for your business.
What is a line of credit?
A business line of credit (LOC) from a trusted bank partner gives you access to the funds you need, when you need them. You decide when and how to use your funds, and your interest-only monthly payments are based on the amount you actually use.
A line of credit may offer an additional $25,000 - $100,000 to optimize cash flow, cover operational expenses, and maintain financial stability for your business.
Using a line of credit to optimize cash flow
For optimizing cash flow, a LOC has advantages over regular business loans, which require a business owner to borrow a lump sum. Because LOC funds are generally flexible, with no set monthly payments and no interest charged on unused money, they are often regarded as an excellent way to ensure that short-term funding needs are met. And you can reuse funds after you have paid them off, providing even more flexibility and access. A LOC may be treated similarly to a business credit card; it’s there if and when you need it.
Many small businesses have a hard time gauging their cash flow needs, especially newly established businesses or those with seasonal fluctuations. A line of credit may help ensure that there is enough capital on hand to cover payroll, weather challenges, embrace new opportunities, and control interest expenses. Most importantly, a line of credit may help make it so that you don’t need to cease operations, or shut your doors during a rough season.
How to cover operational expenses
A line of credit is typically also an effective way to cover operational expenses, including hiring, increasing inventory, and upgrading or investing in new equipment.
Because a LOC is flexible, you may take advantage of seasonal sales or liquidations. For example, if you know you need a new commercial oven soon, you may be able to pull from your LOC when you find the right item. Or, if something needs to be replaced unexpectedly, having an open line of credit helps give you access to funds quickly.
And when you need to increase your inventory, a LOC helps give you the flexibility to buy what you need, when you need it, without having to carry too much overhead.
LOC may help you maintain financial stability
Perhaps one of the biggest benefits of a LOC is using it to maintain financial stability. All businesses ebb and flow, but with access to funds from a LOC, you don’t need to let these fluctuations make or break you.
Business owners can use a LOC to bolster cash flow during slow times. This may be particularly beneficial for seasonal businesses; a LOC could help pay for operating costs like inventory while being cash-poor from outstanding invoices, or keep employees on payroll through slow periods.
Be strategic
A business line of credit can be an effective tool in your financial toolbox. It may be a helpful alternative to a traditional bank term loan, and, since it is reusable, it may help cover cash flow gaps and help your business stay stable.
However, as with any loan, you should generally only use your line of credit when you need it. Consider if it’s a small expense you can pay off quickly. Look for efficiencies or reduce spending. And to help you manage payments, be sure you know your interest rate and how much you’ll pay in interest when you decide to draw funds.
Now what?
A line of credit typically offers access to fast, flexible funds and the opportunity to build your credit. SmartBiz® may help you open a business line of credit, or discover if another option like a Small Business Loan (SBA) or Bank Term Loan would be a better fit. Our dedicated team understands that every business is unique. Get started and apply today.
