Brought to you by Kapitus:
There are many ways for a business to get quick cash, and many reasons why they might need it. There may be a sudden opportunity that a business needs quick capital to be able to take advantage. It could also be that they have a natural cash flow issue and they need an infusion of cash to pay the bills and employees.
As a business owner, you need to make the right choice for your business when it comes to borrowing money. One of the most common options is a business line of credit.
A line of credit works like a cross between a credit card and a standard loan. Instead of getting a lump sum all at once, you’re given a limit from which you can borrow. You can then use as much or as little as you want up to that limit.
There are lines of credit that will allow you to pay down what you’ve used and then borrow from that again. There are also some that will not allow you to pay down or borrow anymore once you’ve reached the limit once.
Uses for a Line of Credit
A line of credit is usually not appropriate for large, single purchases, such as getting equipment or investing in something for your business. You can use a loan or a mortgage for those large one-time purchases. Lines of credit tend to have higher interest rates than loans, which makes them less affordable.
Where a line of credit can be really valuable is when it’s used to manage the daily, weekly, and monthly variations in your business. Some months or seasons are better than others, and having a line of credit in your back pocket can help you weather those difficult storms.
That way you won’t be paying interest on a lump sum sitting in your bank account. Instead, it can be held back until you need it and cost you nothing. It can also prove handy if you have a vendor who doesn’t accept credit card or another payment method that you usually use.
Benefits of a Business Line of Credit
Before you shop for line of credit products from institutions such as Kapitus, it’s important that you understand the benefits of having one. Most likely, the top benefit is that lines of credit are flexible.
You have a predetermined amount that you can spend, and there is no time frame in which you can spend it. You can take funds right up to the limit, or even a smaller amount to cover your needs. Once approved, it’s always available for you to use when you need it.
They tend to come with higher limits without being secured or having to provide collateral. This is different from standard loans, which financial institutions tend to protect with those elements. There are also no other charges with a line of credit. You pay interest on the amount that you use, and that’s it.
The only concern you might have is if you go over your limit somehow. At that point, you may be subject to fees and penalties. Always keep an eye on your limit so you don’t go over by mistake. This can happen if you use checks to access your funds and don’t track them properly.
Who Should Use a Line of Credit?
A line of credit can be useful for just about any type of business in any industry. However, it might be more useful for some because of the uncertain nature of their business. For example, a freelance writer could hit a lull if their clients don’t need work. With a line of credit, the freelancer could pay their bills and stay afloat until the jobs start coming again.
Another great example is a small business that needs to take advantage of an opportunity. For example, it could be that they’ve found some unexpected success with a product or service. They know that if they were able to market it more, they could find great success with it. However, without cash, they aren’t able to invest in a campaign. With a line of credit, they can start an effective marketing campaign and then pay it back using the revenue from the resulting sales.
As you can see, there are plenty of reasons why a line of credit might make sense for your business. The important thing is that you fully weigh your options and make the best choice to help grow your business and keep it financially stable.