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What is a Credit Line for a Business

Article summary: If you don’t want to ask someone, “What is a credit line?” because you are embarrassed, then let us help educate you. A credit line for a business or nonprofit is a finance product you can get from a commercial bank or a private lender like Financing Solutions. It allows you to borrow money up to a pre-approved amount. A credit line, commonly called a line of credit, is for a business or nonprofit that needs help when cash flow is temporarily down. This is usually due to a late client payment or surprise expense that you did not budget for.

When is the Best Time to Get a Credit Line for a Business?

Important Facts You Need to Know about a Credit Line

  • A credit line is best for short term business financing. Most businesses typically use it for things like making payroll, purchasing supplies or handling other daily expenses. It’s not wise to use it for long term expenses like buying a new truck or financing long term inventory.
  • Every business needs a backup plan and a credit line is ideal for this because it is easy to get in place. A line of credit costs nothing until you use it.
  • Over the years getting a credit line has migrated from commercial banks to private lenders. These lenders are now able to approve many more companies or nonprofits for a credit line than ever before because they have easier approval standards
  • A credit line is different than a long term loan. With a business bank loan, you receive a lump sum that you have to use for the exact reason you state in your application. In addition, you will begin repaying it right away, whether you start to use the money or not. This is vastly different from a credit line, where you don’t have to use it until you need it and you can repay the money when your cash flow is stronger because you receive the funds you were originally expecting.

When is the Best Time to Get a Credit Line for a Business?

1. If you want to build your business credit — t’s important to fully separate your business credit from your personal credit history. This will make it easier for you to obtain small business loans and other funding in the future. 

2. When you want to improve your business cash flow. Uneven cash flow is an issue for all small businesses and nonprofits. Often, this problem is the result of accounts receivable gaps, seasonal sales fluctuations and emergencies that you didn’t expect. Anytime cash flow is low, it adversely affects your business operations. With a credit line, you can inject money into your business when you need it. That way you can easily handle these situations without needing to take funds from other areas of your business.

3. You should get a credit line before you need it. When you are desperate and need business cash right now, that is not the time to apply for a credit line. Lenders never want to give money to a frantic business that seems as if it’s on its last leg. By the same token, you are not making your best decisions in this situation.

Turn to Financing Solutions (www.financingsolutionsnow.com) for a credit line that is quick to apply for, easy to get in place and very inexpensive. Best of all, you can get your money in 48 hours or less.

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