All businesses must adapt to change with time, particularly when experiencing growth or uneven cash flow. As per Charles Spinelli, even the most successful businesses might have to deal with urgent unplanned expenses, late invoice payments, and other short-term situations where cash flow is uncertain. In situations like this, availing business line of credit would be a good idea. After all, access to extra funds can at times mean the difference between closing a business or surviving the tough times and coming out on top.
Charles Spinelli marks the features and advantages of a business line of credit
A line of credit implies to a predetermined amount of funds that is borrowed by business owners in times of need, and repaid later. Unlike traditional term loans, one can use these funds as and when they need them for varying business purchases, like supplies, inventory or meeting operating expenses. Term loans have a fixed monthly repayment. On the other hand, one can pay back their credit line anytime, without having to incur any early repayment fees.
A business line of credit can be either unsecured or secured. A secured line of credit typically includes collateral like real estate, investments and cash. Providing collateral ideally results in more favourable loan terms along with a lower interest rate. As an unsecured line of credit increases the risk for the lender, it can have slightly higher interest rates. A business would additionally require a solid financial profile to avail an unsecured business line of credit.
Here are some of the prime benefits that come with opening a business line of credit:
- Flexibility of usage: Close end loans are usually used to avail funds for a specific purpose, like buying a piece of equipment. Business line of credit, however, provides a greater level of flexibility, and can be used for a number of purposes, starting from covering payroll to buying inventory.
- Access to cash on demand: Unlike traditional loans, a revolving credit line enables the borrowers to source funding before their business actually requires the money. Owing to the cyclical nature of business, many business owners want to borrow money to take care of the short term needs of their company. Having the ability to access funds on the credit line at any point in time can help business owners to run their venture in a smooth manner, day in and day out.
- Flexible payment terms: Traditional term loans require set EMIs that may potentially present a challenge to the growth of a business, especially if it’s a startup. A revolving credit line however provides flexible repayment terms. As opposed to a term loan, in case a business has a slow month it gets the freedom to simply pay the minimum amount due.
Charles Spinelli mentions that business lines of credit typically have loan amounts that are smaller than traditional business loans, and are commonly funded more swiftly. Most traditional banks can take days or weeks to approve a loan. On the other hand, many online lenders can provide access to funds as quickly as within a business day.