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A Business Line of Credit: How Important Is It for Your Business?

There are various obstacles business owners face each day, especially regarding capital. Needing cash flow to keep up with necessary expenses in business such as salary wages, products, management, etc., is a common issue. Perhaps you’d like to seize an opportunity for a new investment, but you don’t have the cash at your request. Instead of immediately considering taking out a term loan, accepting the full funds at once, and paying a fixed rate of interest, why not look into a more flexible option? Having an easily accessible credit line by applying for a Business Line of Credit could be highly beneficial for you and your business. Unlike a term loan, a Business Line of Credit is a revolving line that you could draw up and down on, being used short-term for quick cash needs.

Let’s begin by understanding what a Business Line of Credit is and how it works for businesses.

A business line of credit is much like a credit card. It’s an arrangement between your company and a commercial bank or private lender that establishes a maximum loan amount that you can access for business expenses. For example, instead of needing to take out a loan for $100,000 of cash, you can choose to take out whichever amount of cash you prefer out of the total amount of your credit line for what you specifically need, when you need it. This is much easier for business owners that need quick and immediate cash for a particular area in their business. As you withdraw cash from your Business Line of Credit, you would then pay interest depending on how much of the funds you’ve withdrawn. Once you settle the principal balance, the amount you pay will be available for use again. Therefore, it’s your choice to decide when and how much you’d like to borrow.

So, let’s look at the benefits of a Business Line of Credit:

The Benefits of a Business Line of Credit

Covers Short-Notice Expenses

A business line of credit can be a useful tool for covering short-notice expenses. In a case where your clients delay payment, you can withdraw funds from a business line of credit to make payments on your necessary expenses. For example, if you own a retail store that relies on the holiday season for most of its sales, then you may face cash flow issues during other times of the year. In this case, you can use a business line of credit for payroll generation.

Easier to Manage Than a Business Loan

A business line of credit is easier to manage than a business loan, where you are required to make regular payments. As mentioned earlier, you are also charged interest on the entire loan amount. A business line of credit, on the other hand, only requires you to pay interest on the amount you have withdrawn.

More Opportunities

Businesses with cash flow problems are often unable to take advantage of a window of opportunity. For instance, let’s say that you come across a good investment opportunity; however, due to the unavailability of funds, you may not be able to invest and take advantage. Having a Business Line of Credit can resolve this issue, and you won’t have to miss out on a useful opportunity to earn a profit.

Improves Business Credit

Having a business line of credit also improves your business credit as you pay off the funds you withdraw. Having a long record of good business credit history is particularly useful in getting the best terms and rates on business loans.

The Bottom Line

To wrap things up, using a Business Line of Credit could be a flexible and viable option for your business. The ability to access and borrow capital quickly and easily when your business needs the funds upfront is a huge advantage of a Business Line of Credit as opposed to a long-term loan of longer fixed terms and interest rates. This allows businesses to save costs by withdrawing capital based on their needs. If you have any additional questions or would like further guidance on a Business Line of Credit, consider contacting a commercial bank or private lender to assist you.


About Troy Business Group | Melissa Santos

Melissa Santos is a representative from Troy Business Group. Troy Business Group is a full-service business financing firm catering to small to mid-sized business all over the world. A representative could help guide and assist you if needed. 

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