A line of credit can be a vital lifeline for small businesses. Lines of credit offer flexibility in borrowing, offering your business access to cash when it is needed, including in unexpected situations. In some cases, access to reliable credit can even mean the difference between paying debts and staying afloat, or declaring bankruptcy. If you do not presently have a business line of credit, below are three benefits of obtaining one that are worth considering.
1. Cash For Unexpected Contingencies
Lines of credit offer a certain peace of mind in their ability to help you cover unexpected expenses. These happen all the time in business: perhaps a client is extremely late on a payment, or you need to make a substantial emergency repair to your physical location.
Alternatively, sometimes businesses must simply weather unexpected slowdowns, due to seasonal or other factors. Whatever the reason, being able to draw funds as needed — and pay them back once your balance sheet looks better — can be incredibly useful in preparing for the unexpected.
Moreover, the funds are there before an emergency arises, ensuring you don’t need to spend urgent moments in a desperate situation frantically applying for loans.
2. Flexibility
Another benefit of lines of credit is their flexibility: you can access cash when you need it, and leave it alone when you don’t. Typically, your line of credit will have a certain limit. You can draw funds up to that limit, and as your debt is repaid, your line opens up again.
Of course, this flexibility is only really useful if you have a regular need for the funds. A line of credit may include regular maintenance fees, and will almost certainly include origination fees, meaning that this access to cash comes with a regular cost, though it may be manageable. It’s vital to ensure the money is used, or the investment will be unnecessary.
3. Build Your Business Credit Score
A tangential benefit of a line of credit is that it can help build up your business’ credit profile for future loans. Regular repayment of a credit line should improve your business’ credit score, and broadly demonstrate reliability as a borrower. If you end up seeking a larger loan at a later date, this may come in handy.
Ultimately, there are numerous benefits to securing a line of credit for your business. Consider the three above and whether this type of loan would be useful for your small business.