Do I Need a Business Line of Credit?
A growing business needs access to funds to stay competitive and take advantage of opportunities.
For some, a business loan is the best option, providing a regular repayment schedule and diminishing debt. For others, a line of credit provides flexible and convenient financing for covering day-to-day operating costs or pursuing a time-sensitive business opportunity such as stocking up on inventory for the busy Holiday Season.
What is a business line of credit?
A business line of credit is a simple and flexible financing solution providing revolving capital that gives you access to cash.
The lender may approve your business for a certain dollar amount, known as your “credit limit”. You can borrow what you need, when you need it, without having to go through any further applications or approvals.
When you withdraw funds, your remaining available credit is reduced accordingly the interest starts to accrue. Unlike a loan, however, you only pay interest on what you have withdrawn to use at any given time.
For example, if you have a $20,000 credit limit, and you spend $5,000, you now have $15,000 still available. A business line of credit is revolving credit, so when you pay back that $5,000, you once again have access to the full $20,000 and no further interest is charged.
Because a business line of credit is so flexible and convenient, you might want to get it in place before you actually need the funds, so it’s ready and waiting when opportunity knocks. This allows you to quickly invest in additional stock, take advantage of volume discounts, expand into new product lines, ramp up your marketing, and even pay for part-time help – it’s entirely up to you.
What types of business lines of credit are there?
There are two kinds of business Lines of Credit: secured and unsecured.
Secured lines of credit are backed by your assets. These assets, such as your equipment, serve as collateral for the line in case you default on repayments.
Applying for and getting approved for a secured line of credit may take longer than the process for an unsecured line, as the value of your assets may need to be appraised by the lender as a source of repayment.
While this may sound daunting, discuss with the lender how having a secured versus unsecured line would impact your credit limit and the interest rate that you would be charged. Then you can make the best decision for your business, based on your finances and goals.
Like any business decision, you should look into the options available from different providers. Before deciding, be sure to do your due diligence and only go with a lender that has a solid reputation and track record.
Are There Other Options?
If you are not keen on borrowing funds, you might like to consider getting your own money faster so that you can purchase more inventory as needed. One way we recommend doing this is with a Payoneer Capital Advance. This service enables you to have cash in hand when you need it most – helping you negotiate better discounts from suppliers and improving your bottom line. It also gives you the flexibility to invest in a greater variety of items, so you can offer your customers more choices in purchasing their perfect gifts. You’ll stay well ahead of the competition by streamlining your cash flow to maximize your business.
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