How Does a Business Line of Credit Work
There are numerous ways for a small business to get the financing they need for growth or survival. You may know all about methods such as express business loans, peer to peer lending and equipment financing. Still, you may need more information about how a business line of credit works.
Many companies use a business line of credit in place of or when unable to qualify for a traditional emergency business loan. Once you learn more about a business line of credit and other types of financing, you can decide what is best for your business.
What Can You Expect from a Business Line of Credit?
In business, having cash on hand can mean the difference between staying successful and failing. Nonetheless, there are times when you may be short on cash, like during a seasonal slow period or during an emergency. For many small businesses, a fast business loan is not an option, so they take out a business line of credit.
A business line of credit is when you are approved for a set dollar amount and time frame, say 10,000 for 12 months. If you have the line with a bank they will charge you an application fee and a set up fee.
Additionally, the bank will want CPA-reviewed financials yearly and they will charge you interest daily for each day you have money outstanding. You are only charged for the funds you remove from the account and can pay back the financing at any time.
However, if you have difficulty repaying the money, your credit score could take a huge hit. Also, even if your business fails, you will most likely still be liable for the line of credit.
How Are Cash Advances Different from a Business Line of Credit?
A business line of credit from a bank is old school. Today there are easier ways to get the benefits of a business line of credit without all the hassles.
Many companies, like Financing Solutions (www.financingsolutionsnow.com), are offering cash advances or lines of credit products that allow you to not put up any collateral and to have a place to turn to when cash flow is down. This provides an ideal solution for managing your cash flow.
Financing Solutions cash advances and line of credit products are much easier to qualify for, require a lot less time/paperwork and give you more flexibility. They offer a convenient repayment schedule that allows you to pay the money back in a few weeks or months, with no early repayment penalties.
Tips to Effectively Manage Your Business Line of Credit
A business line of credit is like a cookie jar that your company can take from when you are short on cash. However, just like cookies, you have to know when and how much to take to avoid getting sick.
For instance, you should think carefully about the money you borrow from it and what it will be used for. If it will not quickly lead to significant profit and growth, then it’s probably not a good idea.
You should also only use a business line of credit for business issues. It is tempting to use it to pay off a personal loan or credit cards, but this must be avoided to prevent future troubles.
Of course, the best way to manage your money is to get lines of credit products from Financing Solutions. They will give you the cash advance you need to manage your finances and finance growth.