One of the distinct advantages of being a small business is the fact that you can often display more agility and respond to market trends more easily than larger companies. This should help you to gain an edge, but it can have an impact on your cash flow when you try to grow your business.
One of the best ways of addressing this problem would be to arrange a business line of credit.
There are numerous benefits attached to having a line of credit that you can use to see your business through the peaks and troughs of cash flow that occur during these periods of growth.
Here are some answers to some of the fundamental questions you might have about a business line of credit and a look at the reasons why it offers a great solution when you need ready access to cash.
What exactly is a small business line of credit?
If your business needs a specific amount of money you might approach your bank for a loan to cover that amount.
That sort of financing has its limitations mainly because it requires detailed planning to establish exactly how much you need and then budgeting for a fixed monthly repayment to repay what you owe over a specified period.
A small business line of credit means you can borrow what you need up to an agreed limit.
This means that you can usually cope with a degree of uncertainty when it comes to cash flow demands. You only borrow what you need, when you need it. That also means you only pay for what you borrow rather than making fixed monthly repayments, which could prove more expensive.
Using a small business line of credit is a great way to get the working capital you need
The fundamental reason why you would choose to use a small business line of credit is that it gives you access to short-term funding that you might need from time to time, especially if your business can be seasonal.
Understanding the difference between secured and unsecured lending
Your bank or finance provider might ask for you to put up collateral to guarantee the debt you incur, which would mean that you would sign to say that personal assets could be sold to cover what you owe in the event of a default.
However, another positive aspect of a small business line of credit is that this is typically offered without the need to offer up security. The benchmark is often that if you want a line of credit that is less than $100K, you can get this on an unsecured basis. Having access to a larger sum of money that is more than $100K will often entail being asked for collateral so that the loan is secured against personal assets.
How do you get a small business line of credit?
Every lender will usually have a specific set of lending requirements and criteria that you will have to fulfill.
Your business will probably need to have been trading for a reasonable period of time and you may be asked to produce a business plan to demonstrate why you might need this line of credit.
A small business line of credit is often a cheaper form of finance than a credit card, for example, and it is usually more flexible when it comes to allowing you to cope with varying cash flow demands than taking a fixed-term loan.
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