A business line of credit is available to almost anyone who has a business. It is an attractive option in comparison to the alternatives because it allows more flexibility in operating finances. For example, there is no debt to repay and you are not restricted by repayment dates.
Instead, a line of credit works like a credit card, where credits are applied to the account when they are earned and spent. Interest starts to build when you draw funds, and then the amount that you owe (excluding interest) can be borrowed again as you repay the balance. If used wisely, they can be an extremely effective alternative to personal loans.
Business line of credit come with many advantages over personal loans. For example, unlike a credit card, there is no limit on how much you can borrow, although the maximum amount that can be accessed during a year is generally lower. Also, they are usually paid back over a specified period, such as a year or two.
You will have to repay the limit each month and make payments by the repayment schedule. This is not the case with a credit card. As long as you make payments within the specified period, they are deducted from the balance each month until the debt is repaid.
There are two types of business lines of credit available – revolving loan schemes and fixed-rate loan schemes. A revolving loan scheme allows you to borrow more money over a longer period than a fixed-rate plan. The initial payment you make is less than the total amount of money you would repay if you had kept borrowing the fixed amount throughout the year, but the advantage is that you do not need to consider how much you might lose should interest rates fall.
With a fixed-rate plan, a small amount is paid into the account each month, until the full amount is repaid. If interest rates fall, so do the repayment amount and the amount owed. With a revolving loan, any interest that is paid in one month is applied to the total amount that has been borrowed in the following months, until the full amount is repaid.
Business lines of credit allow you to borrow money, which is typically paid directly to you or transferred to an account, either by making a payment or electronically. This means you do not have to keep track of when payments are due. Business lines of credit are particularly useful for businesses that offer their products and services online. Instead of having to pay a supplier regularly, which would incur a financial obligation, customers can pay through the website and have their purchases completed instantly.
Because business lines of credit are paid every month, they provide the business owner with an additional source of income. They do not have to rely on cash sales alone, which can be difficult for small business owners who are struggling to get by.
When used in conjunction with other short-term loans, business credit cards offer a great opportunity to increase cash flow. Depending on the line of credit, business owners may be able to get a higher credit limit, access to online processing, lower interest rates, and no early pay-out fees. While these benefits can be enjoyed by only the largest companies, there are some instances where they are more beneficial to the smaller business owner.
The business line of credit loans can help businesses meet short-term cash needs. The biggest benefit is the convenience of the process. Instead of going through a traditional financial institution and dealing with all the paperwork, the process can be conducted online with minimal effort. Businesses should always consider a long-term financing option because it can give them immediate access to short-term funding.