Too few businesses know about, much less take advantage of, what a line of credit has to offer. The problem is, not understanding this option
What Is a Business Line of Credit (LOC)?
A business line of credit works by combining the best benefits of a traditional loan and a credit card in sort of a hybrid of the two. Lines of credit act like the credit on a credit card. It’s there, it’s available, it can be spent whenever a business needs it. No interest is charged until some of the money is used.
On the other hand the percentage is much lower than even the cheapest of credit cards, usually very comparable to the rates of a traditional loan. This makes it very affordable and monthly payments to the line of credit bring up how much money is once again available.
This versatility and flexibility is a big benefit that a traditional loan will not provide.
Why Is a Business LOC Better Than a Loan?
There are several reasons why it makes more sense to go with a line of credit versus a loan. The first is versatility. You’re only being charged interest on money you’re using with a line of credit. If you take out a loan, the interest rate is on the entire amount. If the big purchase is 3 or 6 months away or the supply line gets disrupted, too bad. You’re still paying interest on that money that is sitting there not being used.
With a line of credit that money is always available, but no interest charges start until the actual purchases are made. That money is right there for use as if it was sitting in your back account.
No additional interest paid because of delays, or money sitting around. No having to “over borrow” to hit some random borrowing guidelines that a bank sets for dealing with businesses. The credit can be used as the business sees fit and since the interest only starts on in-use money, it is likely to cost less over the long run, as well.
Many businesses that go with the LOC end up preferring this to a traditional loan structure.
What Are You Waiting For?
There’s no reason not to talk to local banks or credit unions to take a look at what your options are for a working line of credit. It’s versatile, it’s there, and can open up a wide array of options for your business without forcing a commitment. The money doesn’t get borrowed until it’s needed and at that point you can take as little or as much as needed.
This acts as a safety net, a versatile tool, and an excellent way to manage borrowed money perfectly with a business’s needs.