Whether your business experiences seasonal cash flow issues or has recently experienced a major expense, it can be tough to keep up your working capital. Cash flow struggles affect nearly every company, and a small business can be put in a serious situation with just a few setbacks. Learn how to keep up your working capital with dynamic lines of credit.
Most bank loans require a high credit score, at least two years in business and detailed financial history. Small businesses can often find other forms of financing that handle their needs in a more flexible, relevant way. A line of credit allows you to be approved for a predetermined amount of credit. Whenever you need financing you can simply borrow the exact amount you need.
When an unexpected expense comes up, you can pay for it without the stress of draining your accounts. Many businesses use lines of credit as a safety net for when they find themselves in sudden financial hardship. You can also use a line of credit to fulfill orders. For example, if you’ve received an order for $10,000, which has a material cost of $5,000, you need $5,000 additional working capital to fulfill the order. If you aren’t comfortable with how low your account will be after this, or if you don’t have the full amount on hand, simply use your line of credit to purchase the materials. You’ll only pay interest on the loan amount after you’ve withdrawn it, and you’ll be able to pay it back in full after you receive your invoice.
Depending on whether your line of credit is secured or not will affect the maximum credit limit and interest rates. Compared to a bank loan, lines of credit are approved quickly and funds are available immediately after approval. Because you’re pre-approved for the credit limit, you don’t have to request permission to use your financing for any particular business-related expense.
A secured line of credit is backed by one or more of your assets. This makes your lending institution feel more confident that they’ll receive their payment, so you’ll typically receive more competitive interest rates and become approved easier. Unsecured lines, however, aren’t burdened by the threat of losing your equipment or real estate.
Grow your business with this versatile and dynamic form of financing. Whether you need a few hundred extra dollars or a few thousand, lines of credit can help smooth out any transitions, growing pains or periods of poor cash flow your business may be experiencing.